Gone, But Not Forgotten: Inflation Perceptions And Attention After The Post-Pandemic Inflation Surge

Despite rapid disinflation following the post-pandemic inflation surge, euro area citizens have remained highly attentive to, and also personally concerned, by inflation. One of the most evident post-pandemic scars is citizens’ perception that inflation significantly exceeds official figures. Given the magnitude of the post-pandemic price level shift and its adverse consequences for households, the persistence of elevated inflation perceptions and inflation attention can thus be seen as part of an understandable and likely “post-traumatic†reaction. This chapter argues that this condition creates several risks, both macro-economic, and political and institutional. It creates a fertile ground for the de-anchoring of inflation expectations and weighs on economic activity by dragging down consumer sentiment. Additionally, it may lessen institutional trust, having important political consequences. An open—yet timely—question is to what extent the experience of the post-pandemic inflation surge will condition consumer behaviour in reaction to future adverse supply shocks, which are expected to become more frequent.