Working Paper: CEPR ID: DP16930
Authors: Michael Weber; Yuriy Gorodnichenko; Olivier Coibion
Abstract: As the pandemic spread across the U.S., disagreement among U.S. households about inflation expectations surged along with the mean perceived and expected level of inflation. Simultaneously, the inflation experienced by households became more dispersed. Using matched micro data on spending of households and their macroeconomic expectations, we study the link between the inflation experienced by households in their daily shopping and their perceived and expected levels of inflation both before and during the pandemic. In normal times, realized inflation barely differs across observable dimensions but low income, low education, and Black households experienced a larger increase in realized inflation than other households did. Dispersion in realized and perceived inflation explains a large share of the rise in dispersion in inflation expectations.
Keywords: inflation expectations; surveys; COVID-19
JEL Codes: E02; E03
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| realized inflation at the household level (D19) | households' inflation expectations (D19) |
| experienced inflation (E31) | inflation expectations (E31) |
| perceived inflation (E31) | inflation expectations (E31) |
| realized inflation (E31) | perceived inflation (E31) |
| realized inflation (E31) | inflation expectations (E31) |
| experienced inflation (E31) | realized inflation (E31) |