IDEAS home Printed from https://ideas.repec.org/p/euf/dispap/159.html

Making Sense of Consumer Inflation Expectations: The Role of Uncertainty

Author

Listed:
  • Lovisa Reiche
  • Aidan Meyler

Abstract

Consumers’ inflation expectations play a key role in the monetary transmission mechanism. As such, it is crucial for monetary policymakers to understand what they are and how they are formed. In this paper we introduce the (un)certainty channel as means to shed light on some of the more puzzling aspects of reported quantitative inflation perceptions and expectations. These include the apparent overestimation of inflation by consumers as well as the negative correlation observed between the economic outlook and inflation expectations. We also show that the uncertainty framework fits with some of the stylised facts of consumers’ inflation expectations, such as their correlation with socio-demographic characteristics and economic sentiment.

Suggested Citation

  • Lovisa Reiche & Aidan Meyler, 2022. "Making Sense of Consumer Inflation Expectations: The Role of Uncertainty," European Economy - Discussion Papers 159, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:159
    as

    Download full text from publisher

    File URL: https://economy-finance.ec.europa.eu/publications/making-sense-consumer-inflation-expectations-role-uncertainty_en
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefano Neri & Guido Bulligan & Sara Cecchetti & Francesco Corsello & Andrea Papetti & Marianna Riggi & Concetta Rondinelli & Alex Tagliabracci, 2022. "On the anchoring of inflation expectations in the euro area," Questioni di Economia e Finanza (Occasional Papers) 712, Bank of Italy, Economic Research and International Relations Area.
    2. Lovisa Reiche, 2023. "That’s what she said: An Empirical Investigation on the Gender Gap in Inflation Expectations," Economics Series Working Papers 1025, University of Oxford, Department of Economics.
    3. Jonas Dovern & Alexander Glas & Geoff Kenny, 2024. "Testing for differences in survey‐based density expectations: A compositional data approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(6), pages 1104-1122, September.
    4. Daria Minina & Gabriele Galati & Richhild Moessner & Maarten van Rooij, 2024. "The effect of information on consumer inflation expectations," Working Papers 810, DNB.
    5. Raquel Ayestarán & Juan Infante & Juan José Tenorio & Luis Alberiko Gil-Alana, 2023. "Evidence of Inflation Using Harmonized Consumer Price Indices in Some Euro Countries: France, Germany, Italy, and Spain, along with the Euro Zone," Mathematics, MDPI, vol. 11(10), pages 1-12, May.
    6. Monge, Manuel & Lazcano, Ana & Infante, Juan, 2024. "Monetary policy and inflation rate in the behavior of consumer sentiment in the us. A fractional integration and cointegration analysis," Research in Economics, Elsevier, vol. 78(3).
    7. Erwan Gautier & Jérémi Montornès, 2022. "Household Inflation Expectations in France: Lessons from a New Survey and the COVID-19 Crisis," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 534-35, pages 3-19.
    8. Philip Schnattinger & Prachi Srivastava, 2025. "Household Inflation Uncertainty and Wage Growth Expectations," CESifo Working Paper Series 12216, CESifo.
    9. Michal Marencak, 2023. "State-dependent inflation expectations and consumption choices," Working and Discussion Papers WP 10/2023, Research Department, National Bank of Slovakia.
    10. Anahit Matinyan & Ardash Kilejian & Gevorg Minasyan & Aleksandr Shirkhanyan, 2025. "The Role of Information in Shaping Inflation Expectations and Perceptions: A Survey Experiment," Working Papers WP-2025-02, Central Bank of Armenia.
    11. Rosaria Simone & Marcella Corduas & Domenico Piccolo, 2023. "Dynamic modelling of price expectations and judgments," METRON, Springer;Sapienza Università di Roma, vol. 81(3), pages 323-342, December.
    12. Ali Inayat, 2023. "Household Inflation Expectations Uncertainty: A Case for Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 28(1), pages 1-39, Jan-June.
    13. Dovern, Jonas & Glas, Alexander, 2025. "Uncertainty and rounding in expectation surveys," Discussion Papers 22/2025, Deutsche Bundesbank.
    14. Grishchenko, Vadim & Gasanova, Diana & Fomin, Egor, 2025. "Visible prices and their influence on inflation expectations of Russian households," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 107-115.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:dispap:159. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ECFIN INFO (email available below). General contact details of provider: https://edirc.repec.org/data/dg2ecbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.