Consumers' Attitudes and Their Inflation Expectations

Abstract

This paper studies consumers’in‡ation expectations using micro-level data from the Surveys of Consumers conducted by University of Michigan. It shows that beyond the well-established socio-economic factors such as income, age or gender, other characteristics such as the households’…nancial situation and their purchasing attitudes are important determinants of their forecast accuracy. Respondents with current or expected …nancial di¢ culties, pessimistic attitudes about major purchases, or expectations that income will go down in the future have a stronger upward bias in their expectations than other households. However, their bias shrinks by more than that of the average household in response to increasing media reporting about in‡ation. Equivalent results are found during recessions. JEL classi…cation: C53, D84, E31