US Consumer Inflation Expectations: Evidence Regarding Learning, Accuracy and Demographics

Central banks have become increasingly aware of the importance of consumer inflation expectations in meeting monetary policy objectives. US consumer year-ahead inflation expectations data is available as measured by the Michigan 'Survey of Consumer Attitudes and Behavior'. Using the detailed demographic information recorded as part of the interview process to accommodate forecast heterogeneity, results suggest the accuracy of forecasts is linked to the demographic characteristics of the respondent. This survey also contains a short-rotating panel dimension, with most respondents being reinterviewed six months after the initial interview. Uniquely, this paper uses these matched interviews to examine whether consumers learn about inflation, improving the accuracy of their forecast from initial to reinterview. Results suggest, having corrected for attrition bias, that being reinterviewed stimulates agents to learn and improve forecast accuracy, the level of improvement being dependent on the demographic characteristic of the interviewee.