Hyperinflation Expectations: An Experimental Study

Consumers’ perceptions of current inflation play a key role in understanding household consumption and investment decisions as well as the impact of monetary policies. Evidence from countries with low or moderate inflation shows that people’s perception of inflation often diverges significantly and systematically from official inflation rates. We examine the relationship between actual and perceived inflation in a hyperinflation environment. Our experimental results show that, opposite to low inflation, hyperinflation is greatly underestimated in people’s perceptions. Moreover the accuracy of inflation perceptions, as inflation rises, exhibits an inverse-U shape, which confirms our novel, preregistered “perception accuracy inversion hypothesis”.