Inflation expectations and the price at the pump

Updates to household inflation expectations: Signal or noise?

“…The differences across the items are minor, so are the differences across numeracy, education, and income groups. These results are consistent with those reported in Binder (2018), who found that households do not attach much weight to gas price when forming their expectations, despite the prominence of gas price in average consumers' daily lives. Table 3.…”

Oil Prices, Gasoline Prices and Inflation Expectations: A New Model and New Facts

“…The importance of such idiosyncratic shocks has been emphasized in Madeira and Zafar's (2015) study of household-level inflation expectations data.The identification of the structural model exploits a combination of sign and zero restrictions on the structural impact multiplier matrix shock is assumed to raise the real price of gasoline on impact because the CPI responds more slowly than the nominal price of gasoline. It also is assumed to raise household inflation expectations, given the household-level evidence inBinder (2018). A positive shock to the core CPI (defined as consumer prices excluding gasoline price) raises consumer price inflation and inflation expectations, consistent with the evidence in Binder (2018).…”

Oil Prices, Gasoline Prices and Inflation Expectations: A New Model and New Facts

“…Our work relates to the literature on whether inflation expectations have been successfully anchored by the increased credibility of monetary policy in recent decades (see, e.g., Bernanke 2010;Jorgensen and Lansing 2019). It also relates to a growing literature on how household inflation expectations are determined (see, e.g., Madeira and Zafar 2015;Binder 2018;Angelico and Di Giacomo 2019;Binder and Makridis 2020). In addition, our analysis is related to earlier work on how oil and gasoline price shocks are transmitted to inflation (see, e.g., Kilian 2009;Clark and Terry 2010;Kilian and Lewis 2011;Wong 2015;Conflitti and Luciani 2019).…”

“…It therefore makes more sense to evaluate the link between gas prices and consumer inflation expectations directly. This is also the approach taken by several more recent studies including Binder (2018) and Coibion, Gorodnichenko, Kumar and Pedemonte (2020). We employ the city average of the price for unleaded motor gasoline, as reported in the U.S.…”

“…Next, we explain how to reconcile this result with the seemingly large correlation 1 Examples include Anderson, Kellogg and Sallee (2013), Elliott, Jackson, Raczko and Roberts-Sklar (2015), Sussman and Zohar (2015), Wong (2015), Binder (2018), Hasenzagl, Pellegrino, Reichlin and Ricco (2018), Conflitti and Cristadoro (2018), and Coibion, Gorodnichenko, Kumar, and Pedemonte (2020).…”