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Food prices matter most: sensitive household inflation expectations

Author

Listed:
  • Nikoleta Anesti

    (Bank of England)

  • Vania Esady

    (Bank of England)

  • Matthew Naylor

    (Bank of England)

Abstract

We construct a novel data set to investigate the sensitivity of household inflation expectations to personal experienced inflation, testing whether households weigh price changes differently across items in the consumption basket. Across households of all age, income, gender, work status, UK region, and house tenure groups, food prices matter significantly more for inflation expectations dynamics than other components, including energy. In particular, households’ expectations are sensitive to changes in food price-driven inflation at short, medium and long horizons, and this association is persistent, non-linear and asymmetric. Our results imply that the risk of household expectations contributing to persistent inflationary dynamics are greatest following large and inflationary shocks to, specifically, food prices. Moreover, our findings can rationalise a number of empirical regularities related to household expectations: their upwards bias relative to actual inflation; cross-sectional heterogeneity across demographic groups; and their ‘supply-side’ oriented view of the economy.

Suggested Citation

  • Nikoleta Anesti & Vania Esady & Matthew Naylor, 2025. "Food prices matter most: sensitive household inflation expectations," Bank of England working papers 1125, Bank of England.
    • Handle: RePEc:boe:boeewp:1125
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Volker Hahn & Michal Marencak, 2025. "Inflation Perceptions and Monetary Policy," Working and Discussion Papers WP 4/2025, Research Department, National Bank of Slovakia.

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    More about this item

    Keywords

    Households; inflation expectations; inflation experiences; food prices; heterogeneity; persistence;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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