de Bruin, Wändi Bruine van der Klaauw, Wilbert Downs, Julie S. Fischhoff, Baruch Topa, Giorgio Armantier, Olivier
Year of Publication:
Staff Report, Federal Reserve Bank of New York 443
Public expectations and perceptions of inflation may affect economic decisions, and have subsequent effects on actual inflation. The Michigan Survey of Consumers uses questions about 'prices in general' to measure expected and perceived inflation. Median responses track official measure of inflation, showing some tendency toward overestimation and considerable disagreement between respondents. Possibly, responses reflect how much respondents thought of salient personal experiences with specific prices when being asked about 'prices in general.' Here, we randomly assigned respondents to questions about 'prices in general,' as well as 'the rate of inflation' and 'price you pay.' Reported expectations and perceptions were higher and more dispersed for 'prices in general' than for 'the rate of inflation,' with 'prices you pay' and 'prices in general' showing similar responses patterns. Compared to questions about 'the rate of inflation,' questions about 'prices in general' and 'prices you pay' focused respondents relatively more on personal price experiences-and elicited expectations that were more strongly correlate to the expected price increases for food and transportation, which were relatively large and likely salient, but not to the expected price increases for housing, which were relatively small and likely less salient. Our results have implications for survey measures of inflation expectations.