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Estimating the rise in expected inflation from higher energy prices

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  • Patzelt, Paula
  • Reis, Ricardo

Abstract

When the price of electricity increases by 1%, households' average expected inflation increases by 1.0 to 1.3 basis points. But, if those expectations have become unanchored, as happened between the start of 2021 and 2023, then the effect is higher by 0.2 to 1.6 basis points. This paper arrives at these estimates by exploiting variation both in the time series, and especially in the cross section, from newly-available public data on expected inflation by Euro area households across region, gender, education, and income, and on the cost of energy across region and source. The impact of exogenous shocks to energy prices on expected inflation increases for 8 to 12 months, but they can only account for a small share of the rise in expected inflation in 2021-23.

Suggested Citation

  • Patzelt, Paula & Reis, Ricardo, 2024. "Estimating the rise in expected inflation from higher energy prices," CEPR Discussion Papers 18907, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18907
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    Cited by:

    1. is not listed on IDEAS
    2. Vedanta Dhamija & Ricardo Nunes & Roshni Tara, 2023. "House Price Expectations and Inflation Expectations: Evidence from Survey Data," School of Economics Discussion Papers 0823, School of Economics, University of Surrey.
    3. repec:ecb:ecbdps:202424 is not listed on IDEAS
    4. Bonomo, Marco & Carvalho, Carlos & Eusepi, Stefano & Perrupato, Marina & Abib, Daniel & Ayres, João & Matos, Silvia, 2024. "Abrupt monetary policy change and unanchoring of inflation expectations," Journal of Monetary Economics, Elsevier, vol. 145(S).
    5. Lorenzo Mori & Gert Peersman, 2024. "Estimating the Macroeconomic Effects of Oil Supply News," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 24/1099, Ghent University, Faculty of Economics and Business Administration.
    6. Kilian, Lutz, 2024. "How to construct monthly VAR proxies based on daily surprises in futures markets," Journal of Economic Dynamics and Control, Elsevier, vol. 168(C).
    7. Lukas Hack & Davud Rostam-Afschar, 2024. "Understanding Firm Dynamics with Daily Data," CRC TR 224 Discussion Paper Series crctr224_2024_593, University of Bonn and University of Mannheim, Germany.

    More about this item

    Keywords

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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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