Inflation Usually Hits Harder for Poor Families. For a Couple of Years, It Didn’t.
https://www.wsj.com/economy/consumers/inflation-usually-hits-harder-for-poor-families-for-a-couple-of-years-it-didnt-50d40c38
New research on how inflation varies between the poor, middle class and rich paints a different picture of poverty and inequality.
https://www.wsj.com/economy/consumers/inflation-usually-hits-harder-for-poor-families-for-a-couple-of-years-it-didnt-50d40c38
New research on how inflation varies between the poor, middle class and rich paints a different picture of poverty and inequality.
The Drivers of Post-Pandemic Inflation
Post-covid inflation was predominantly driven by
unexpectedly strong demand forces, not only in the United States, but also in
the Euro Area. In comparison, the inflationary impact of adverse supply shocks
was less pronounced, even though these shocks significantly constrained
economic activity. With output already weakened by these unfavourable supply
conditions, any attempt by the European Central Bank to further mitigate the
demand-driven inflationary pressures---to maintain inflation near its 2-percent
target---would have severely hampered an already anaemic recovery.
On the Dangers of Inflation Brain
https://www.nytimes.com/2024/05/28/opinion/inflation-federal-reserve-rates.html
https://www.nytimes.com/2024/05/28/opinion/inflation-federal-reserve-rates.html
Inflation Perceptions
https://www.nytimes.com/2024/05/27/opinion/inflation-economics-stefanie-stantcheva.html
Why Do We Dislike Inflation?
https://www.nber.org/papers/w32300
Abstract:
This paper provides new evidence on a long-standing question asked by Shiller (1997): Why do we dislike inflation? I conducted two surveys on representative samples of the US population to elicit people’s perceptions about the impacts of inflation and their reactions to it. The predominant reason for people’s aversion to inflation is the widespread belief that it diminishes their buying power, as neither personal nor general wage increases seem to match the pace of rising prices. As a result, respondents report having to make costly adjustments in their budgets and behaviors, especially among lower-income groups. Inflation also provokes stress, emotional responses, and a sense of inequity, as the wages of high-income individuals are perceived to grow more rapidly amidst inflation. Many respondents believe that firms have considerable discretion in setting wages, opting not to raise them in order to boost profits, rather than being compelled by market dynamics. The potential positive associations of inflation, such as with reduced unemployment or enhanced economic activity, are typically not recognized by respondents. Inflation ranks high in priority among various economic and social issues, with respondents blaming the government and businesses for it. I also highlight a substantial polarization in attitudes towards inflation along partisan lines, as well as across income groups.
People’s Understanding of Inflation
https://socialeconomicslab.org/wp-content/uploads/2024/05/Understanding_Inflation_BNS.pdf
Abstract:
This paper studies people’s understanding of inflation–their perceived causes, consequences, trade-offs–and the policies supported to mitigate its effects. We design a new, detailed on- line survey based on the rich existing literature in economics with two experimental compo- nents—a conjoint experiment and an information experiment—to examine how well public views align with established economic theories. Our key findings show that the major per- ceived causes of inflation include government actions, such as increased foreign aid and war- related expenditures, alongside rises in production costs attributed to recent events like the COVID-19 pandemic, oil price fluctuations, and supply chain disruptions. Respondents’ an- ticipate many negative consequences of inflation but the most noted one is the increased com- plexity and difficulty in household decision-making. Partisan differences emerge distinctly, with Republicans more likely to attribute inflation to government policies and foresee broader negative outcomes, whereas Democrats anticipate greater inequality effects. Inflation is per- ceived as an unambiguously negative phenomenon without any potential positive economic correlates. Notably, there is a widespread belief that managing inflation can be achieved with- out significant trade-offs, such as reducing economic activity or increasing unemployment. These perceptions are hard to move experimentally. In terms of policy responses, there is re- sistance to monetary tightening, consistent with the perceived absence of trade-offs and the belief that it is unnecessary to reduce economic activity to fight inflation. The widespread misconception that inflation rises following increases in interest rates even leads to support for rate cuts to reduce inflation. There is a clear preference for policies that are perceived to have other benefits, such as reducing government debt in progressive ways or increasing corporate taxes, and for support for vulnerable households, despite potential inflationary effects.
https://www.nytimes.com/2024/05/27/opinion/inflation-economics-stefanie-stantcheva.html
https://www.nber.org/papers/w32300
Abstract:
This paper provides new evidence on a long-standing question asked by Shiller (1997): Why do we dislike inflation? I conducted two surveys on representative samples of the US population to elicit people’s perceptions about the impacts of inflation and their reactions to it. The predominant reason for people’s aversion to inflation is the widespread belief that it diminishes their buying power, as neither personal nor general wage increases seem to match the pace of rising prices. As a result, respondents report having to make costly adjustments in their budgets and behaviors, especially among lower-income groups. Inflation also provokes stress, emotional responses, and a sense of inequity, as the wages of high-income individuals are perceived to grow more rapidly amidst inflation. Many respondents believe that firms have considerable discretion in setting wages, opting not to raise them in order to boost profits, rather than being compelled by market dynamics. The potential positive associations of inflation, such as with reduced unemployment or enhanced economic activity, are typically not recognized by respondents. Inflation ranks high in priority among various economic and social issues, with respondents blaming the government and businesses for it. I also highlight a substantial polarization in attitudes towards inflation along partisan lines, as well as across income groups.
https://socialeconomicslab.org/wp-content/uploads/2024/05/Understanding_Inflation_BNS.pdf
Abstract:
This paper studies people’s understanding of inflation–their perceived causes, consequences, trade-offs–and the policies supported to mitigate its effects. We design a new, detailed on- line survey based on the rich existing literature in economics with two experimental compo- nents—a conjoint experiment and an information experiment—to examine how well public views align with established economic theories. Our key findings show that the major per- ceived causes of inflation include government actions, such as increased foreign aid and war- related expenditures, alongside rises in production costs attributed to recent events like the COVID-19 pandemic, oil price fluctuations, and supply chain disruptions. Respondents’ an- ticipate many negative consequences of inflation but the most noted one is the increased com- plexity and difficulty in household decision-making. Partisan differences emerge distinctly, with Republicans more likely to attribute inflation to government policies and foresee broader negative outcomes, whereas Democrats anticipate greater inequality effects. Inflation is per- ceived as an unambiguously negative phenomenon without any potential positive economic correlates. Notably, there is a widespread belief that managing inflation can be achieved with- out significant trade-offs, such as reducing economic activity or increasing unemployment. These perceptions are hard to move experimentally. In terms of policy responses, there is re- sistance to monetary tightening, consistent with the perceived absence of trade-offs and the belief that it is unnecessary to reduce economic activity to fight inflation. The widespread misconception that inflation rises following increases in interest rates even leads to support for rate cuts to reduce inflation. There is a clear preference for policies that are perceived to have other benefits, such as reducing government debt in progressive ways or increasing corporate taxes, and for support for vulnerable households, despite potential inflationary effects.
What we must still learn about the great inflation disaster
Past and present policymakers should ask more searching questions about the causes and impact of the price surge.