According to new faculty research from the University of Chicago Booth School of Business, when consumers expect higher inflation rates they become more willing to spend on the spot. According to a press release on the Chicago Booth website about the new research, households expecting an increase in inflation were more likely to spend on consumer durable goods such as like automobiles, electronics and other household goods.
“Central banks around the world try to raise inflation expectations via unconventional monetary policy measures to increase spending. The bond-buying program of the European Central Bank is the most recent example in a long line,” Chicago Booth Professor Michael Weber said. Weber co-authored the paper, titled “Inflation Expectations and Consumption Expenditure,” with Francesco D’Acunto of the Haas School of Business, and Daniel Hoang of the Karlsruhe Institute of Technology.
The researchers found that although this mechanism is the cornerstone of several macroeconomic theories, and hotly debated in policy circles, direct empirical evidence was missing.
“Measuring inflation expectations of households and their buying intentions has proven difficult. The novel data in our study have several unique advantages in survey design which allow us to tackle the question,” Weber said.
Collectively, the researchers say increased policy transparency and higher financial literacy could help households understand the implications of monetary and fiscal policies and hinder unintended consequences such as the redistribution of wealth.