Download this Paper Open PDF in Browser

Inflation Expectations and the Price at the Pump

42 Pages Posted: 31 May 2016 Last revised: 22 Jul 2017

Carola Conces Binder

Haverford College - Department of Economics

Date Written: July 22, 2017

Abstract

Consumer inflation expectations are positively correlated with gas prices. The optimal monetary policy response to energy price fluctuations depends on whether inflation expectations are excessively sensitive to gas prices, perhaps due to their high volatility and salience. I use multi-horizon microdata to study the dynamics of consumers' gas price and inflation expectations. Consumers do not "overweight" gas prices in their perception of inflation, relative to the expenditure share of gas. They believe gas price inflation is negatively autocorrelated and feeds into core inflation moderately. The impact of gas prices on inflation expectations fades quickly with forecast horizon.

Keywords: Gas prices, energy prices, inflation expectations, core inflation, consumers, anchored expectations, Federal Reserve

JEL Classification: E31, E52, D84, Q43

Suggested Citation

Binder, Carola Conces, Inflation Expectations and the Price at the Pump (July 22, 2017). Available at SSRN: https://ssrn.com/abstract=2784793

Carola Conces Binder (Contact Author)

Haverford College - Department of Economics ( email )

Haverford, CT 19041
United States

Paper statistics

Downloads
85
Rank
251,355
Abstract Views
616