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When the fog clears: the effect of reduced inflation uncertainty on households' financial behaviour

Author

Listed:
  • Johannes Fischer

    (Deutsche Bundesbank)

  • Christoph Herler

    (Bank of England)

  • Philip Schnattinger

    (Bank of England)

Abstract

We study the causal effect of inflation uncertainty on household consumption and saving decisions. Using a representative household survey, we separate the effects of uncertainty from expected inflation by providing respondents with randomised information about the first and second moments of inflation forecasts. Lower inflation uncertainty raises planned spending and expected income, but reduces uncertainty about expected income and interest rates. Higher planned spending is driven by less precautionary saving. In the months following the treatment, households reduce their monthly savings, but report an increase in fixed‑return asset holdings. Finally, we show that households primarily attribute changes in inflation uncertainty to variation in supply‑side shocks.

Suggested Citation

  • Johannes Fischer & Christoph Herler & Philip Schnattinger, 2025. "When the fog clears: the effect of reduced inflation uncertainty on households' financial behaviour," Bank of England Staff Working Paper series 1333, Bank of England.
    • Handle: RePEc:boe:boeewp:023255
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2025/when-the-fog-clears-the-effect-of-reduced-inflation-uncertainty-on-households-financial-behaviour.pdf
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    More about this item

    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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