Households\u2019 inflation perceptions and expectations: survey evidence from New Zealand

Florian Neumeier,Bernd Hayo

doi:10.1007/s10368-021-00524-3

Abstract

In this paper, we study how inflation is viewed by the general population of New Zealand. Based on unique representative survey data collected in 2016 and using descriptive statistics and multivariate regressions, we explore various aspects of how laypersons perceive inflation and form inflation expectations. We focus on how an individual’s economic situation, information search and interest in inflation, economic knowledge, and attitudes and values are related to inflation perception and expectation, as well as the individual’s reaction to them. We interpret our findings as a clear indication that laypersons’ knowledge about inflation is much better described by the imperfect information view prevailing in social psychology than by the rational actor view typically assumed in economics.

Highlights

In macroeconomics and financial economics, inflation is perceived as playing an important role in saving and spending decisions and studying this role is a lively field of research
Researchers working in this domain address fundamental questions such as whether and how laypersons know about price changes, whether their perception of the inflation rate is confounded by other variables, for example, income, or how they store information about past prices in their long-term memories
We study how inflation is viewed by the general population of New Zealand

Summary

Introduction

In macroeconomics and financial economics, inflation is perceived as playing an important role in saving and spending decisions and studying this role is a lively field of research. Standing in the shadow of this dominating approach in mainstream economics is a small, but active, strand of research that explicitly investigates how inflation is viewed by laypersons Researchers working in this domain address fundamental questions such as whether and how laypersons know about price changes, whether their perception of the inflation rate is confounded by other variables, for example, income, or how they store information about past prices in their long-term memories. This alternative stream of research is interdisciplinary in that relevant work can be found in the fields of psychology, marketing, learning and information processing, and media studies.

Conceptual framework and extant literature

Perceptions of last year’s inflation rate

Household inflation expectations

Conclusion