Anticipated versus ‘surprise’ inflation in household consumption behaviour

Abstract

The purpose of this paper is to look at the question of whether it is the anticipated or ‘surprise’ inflation (or both) that matter for household consumption and saving behaviour. We use a large data sample from 23 countries covering mostly the period 1960–1979. Evidence is overwhelming against the hypothesis that only the ‘surprise’ part of inflation matters for household consumption and saving behaviour, but is a bit mixed on the question of whether the anticipated and ‘surprise’ parts of inflation affect with equal force which would ‘justify’ the observed inflation as the appropriate inflation variable in household consumption and saving functions.