Are Consumers More Forward-Looking than We Thought? On the Formation of Consumer Inflation Expectations in Us

We examine the formation of inflation expectations of US consumers, capturing the impact of their other macroeconomic expectations and self-assessments regarding risk aversion and health. Our results suggest that expectations regarding various macroeconomic variables, e.g., expected developments in fiscal policy, are indeed important drivers of consumer inflation expectations. We also demonstrate that self-assessments of the degree of risk-aversion and health contribute to the explanation of the crosssectional heterogeneity of consumer inflation expectations. After considering a range of macroeconomic expectations and self-assessments, consumers seem, to a large extent, forward-looking and the dependence of their inflation expectations on socio-demographic features is diminished