The Pass-Through from Inflation Perceptions to Inflation Expectations
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Abstract
Our analysis shows a strong relationship between households ’ perceptions about inflation over the past 12 months and households ’ short - and long - term expectations about future inflation. We find two key moderating factors for the pass - through: differential information sources used to form inflation perceptions and differences in individual uncertainty about future inflation. Our results suggest that central bankers can influence inflation expectations by managing inflation perceptions. We investigate the relationship between perceptions and expectations. We use micro from the Bundesbank Online Households on individuals in Germany. This contains rich data on inflation perceptions and various measures for short - and long - term inflation expectations. The panel dimension allows studying how the within - person variation in inflation perceptions feeds into expectations.