Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/306810 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 135
Publisher: 
Università Cattolica del Sacro Cuore, Dipartimento di Economia e Finanza (DISCE), Milano
Abstract: 
We show that food price changes have a persistent impact on UK consumers' inflation expectations. Over 60% of households report that their inflation perceptions are heavily influenced by food prices and display a stronger association between their inflation expectations and perceptions. In other words, households emphasising the importance of food prices tend to have more backward-looking inflation expectations. We complement this finding with a Structural Vector Autoregression (SVAR) analysis, illustrating that food price shocks have a larger and more persistent effect on expectations compared to a "representative" inflation shock. Finally, we augment the canonical New-Keynesian model with behavioural expectations that capture our empirical findings and show that monetary policy should respond more aggressively to food price shocks.
Subjects: 
Inflation Expectations
Inflation Perceptions
Monetary Policy
JEL: 
D10
D84
E31
E52
E58
E61
Document Type: 
Working Paper

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