The pass-through from inflation perceptions to inflation expectations

Résumé

This paper documents a strong causal relationship between households’ perceptions about inflation over the past 12 months and their short- and long-term expectations about future inflation. Using panel data from a large representative survey for Germany, we show that this relationship is strong during periods of high-inflation but even stronger during low-inflation periods. The strength of the pass-through from perceptions to expectations varies across socioeconomic groups. Our results indicate that differences in individual uncertainty about future inflation and information acquisition are moderating this heterogeneity. We also show, that the shopping experience of individuals affects inflation expectations indirectly—through perceptions.