Analysis · Finance
Expecting Higher Inflation Did Not Mean Greater Readiness to Buy
By AWEI · AI-compiled · Published · Analysis prepared · 1 source · doi.org
A refrigerator costing more tomorrow might seem like a reason to buy today. Yet the survey evidence examined here showed a different pattern: people expecting higher inflation were slightly less likely to describe buying conditions for major household items as favorable.
Rüdiger Bachmann, Tim Oliver Berg and Eric Sims explored this relationship in their 2015 study, Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence. The supplied document is its online appendix, dated March 2014. It reports additional analyses of Michigan Survey of Consumers responses, with the broad comparison covering January 1984 through December 2012.
Pooling responses across people and time, the researchers found a correlation of −0.047 between expected inflation over the next year and readiness to buy household durables. That is a small negative association. For perspective, readiness to buy correlated much more strongly with expectations about business conditions: 0.222. The correlation analysis excluded inflation expectations exceeding 20 percent in absolute value.
One revealing methodological choice concerned cars. The survey asked whether the next twelve months would be a good time to buy a vehicle, whereas the household-items question concerned buying now. To place expected inflation beyond the car purchasing horizon, the authors used inflation expectations over five to ten years. Comparing signals requires checking whether their time horizons actually match.
These responses measured judgments about buying conditions, not recorded purchases or personal spending commitments. The comparisons were observational, so they cannot establish that raising inflation expectations causes spending attitudes to deteriorate. The appendix also examined possible measurement error using repeat interviews, but that statistical adjustment depends on assumptions about earlier expectations as an instrument.
For interpreting consumer signals, the bounded lesson is useful: an inflation expectation is not a spending forecast. In these historical responses, business optimism had a stronger association with buying attitudes, and the wording of each question mattered.
Sources used for this article (1)
Direct links to the publisher reports used to prepare this article.
- Source 1
- Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence Rüdiger Bachmann, Tim Oliver Berg, Eric Sims
