Self-Reported and Revealed Inflation Inattention

This paper looks at household inflation attention in the euro area, using the European Commission's Business and Consumer Survey. The main contributions are to measure inflation inattention and its drivers and to illustrate how inflation inattention differs across socio-economic categories (gender, income, education and age). We use two measures: self-reported inflation inattention, corresponding to the share of `don't know' responses and a new index of revealed inflation attention. This index assesses how well consumer inflation perceptions match actual inflation outturns and takes into account biases by survey participants. We find that inflation attention increases with inflation, and accelerates when inflation exceeds a certain level. Our results also show that inflation perceptions and expectations change not only due to revisions in views, but also because individuals switch from having no view to holding a view when inflation is high. We also find that there are structural differences in inflation inattention across socio-economic categories, which are closely related to the overestimation of inflation in these categories. These findings have implications for the interpretation of inflation perceptions and expectations and are relevant for the targeting of policy communication towards specific groups and depending on the inflation environment.