Inflation Expectations and the Price at the Pump

Carola Conces Binder

Haverford College - Department of Economics

December 30, 2016

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.

Number of Pages in PDF File: 37

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

JEL Classification: E31, E52, D84, Q43

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Date posted: May 31, 2016 ; Last revised: December 31, 2016

Suggested Citation

Binder, Carola Conces, Inflation Expectations and the Price at the Pump (December 30, 2016). Available at SSRN: https://ssrn.com/abstract=2784793

Contact Information

Carola Conces Binder (Contact Author)
Haverford College - Department of Economics ( email )
Haverford, CT 19041
United States
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