Inflation expectations of households and the upgrading channel

• Main Authors: AGARWAL, Sumit, CHUA, Yeow Hwee, SONG, Changcheng
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Inflation expectations; Consumption; upgrading; Product Replacement; Survey Experiment; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7156; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8155/viewcontent/inflation.pdf
• Institution: Singapore Management University

Motivated by the evidence that households purchased better quality goods across time in Singapore, we use a survey experiment to study the relationship between consumption upgrading and households’ beliefs about inflation. We find that providing price information on better-quality products will lead to higher inflation expectations. The effects on inflation expectations are smaller when price information on both higher- and lower-quality products is made available, suggesting that product replacement increases inflation expectations. Additional tests show that our results are not driven by mixing price with quality or numeracy. Our findings highlight the relationship between product replacement, product variety, and inflation expectations.