Inflation Levels and (In)Attention
Forming expectations is essential for optimal decision making and sits at the core of economic behavior. Will inflation expectations remain anchored in light of recent pandemic-related increases in inflation? That’s a central question in the current policy debate. The authors of this paper construct two different proxy measures of consumers’ inattention in order to explore evidence of inattention among U.S. consumers. This paper is the first in the literature to examine direct measures of consumer inattention to inflation over a long period of time, rather than inferring inattention from the behavior of inflation forecasts as done in previous works—an important examination since inflation expectations are key determinants of economic activity.