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Attention to food prices and the upward bias in inflation expectations

Author

Listed:
  • Ondrej Kusenda

    (National Bank of Slovakia)

  • Michal Marencak

    (National Bank of Slovakia)

Abstract

During the 2022-2023 inflation surge, the gap between households’ inflation expectations and realized inflation in Slovakia widened from 7 to 17 p.p., contradicting the view that greater attention to inflation might mitigate the upward bias. Using LASSO and other machine-learning variableselection techniques, we find that movements in food prices which rose faster than headline inflation are strongly associated with the upward bias increase. This evidence highlights selective attention in expectation formation and suggests that, when sectoral price dynamics greatly exceed aggregate inflation, central banks might assign those sectors greater weight in their inflation target.

Suggested Citation

  • Ondrej Kusenda & Michal Marencak, 2025. "Attention to food prices and the upward bias in inflation expectations," Working and Discussion Papers WP 9/2025, Research Department, National Bank of Slovakia.
    • Handle: RePEc:svk:wpaper:1124
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    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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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