The Rockets and Feathers of Inflation Attention

Abstract

Prior research has documented that attention to inflation shifts when inflation surpasses a 3-4% threshold. In this note we examine how attention to inflation declines in episodes of disinflation. We show that for countries where inflation has returned to "normal" (pre-threshold) levels, attention remains 2-3 times higher than it was before the run-up of inflation. This is one possible mechanism behind the slower-than-expected disinflation in late 2023 and early 2024.

Keywords: inflation, attention, persistence, threshold

JEL Classification: E31, E52, E70