Inflation Expectations of Savers and Borrowers

Résumé

Households’ inflation expectations depend on their financial conditions, even after controlling demographic factors and expectations about the economic outlook. Specifically, savers report higher inflation expectations than borrowers. We establish these regularities using individual level data from the NY Fed’s Survey of Consumer Expectations, the Public Policy Survey and the Household Finance Survey. We make sense of these findings in a life-cycle model in which ambiguity-averse agents are borrowers and savers at different points in their lives. The wedge in expectations naturally arises as high inflation corresponds to the worst-case scenario for savers, while the opposite is true for borrowers.