Template-Type: ReDIF-Paper 1.0


Author-Name: Dario Bonciani

Author-Name: Riccardo Masolo
Author-X-Name-First: Riccardo
Author-X-Name-Last: Masolo
Author-Email: riccardo.masolo@unicatt.it
Author-Workplace-Name: Università Cattolica del Sacro Cuore
Author-Workplace-Name: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore

Author-Name: Sara Sarpietro
Author-X-Name-First: Sara
Author-X-Name-Last: Sarpietro

Title: How Food Prices Shape Inflation Expectations and the Monetary Policy Response.


Abstract: We show that food price changes have a persistent impact on UK consumers’ inflation expectations.
Over 60% of households report that their inflation perceptions are heavily influenced
by food prices and display a stronger association between their inflation expectations and perceptions.
In other words, households emphasising the importance of food prices tend to have
more backward-looking inflation expectations. We complement this finding with a Structural
Vector Autoregression (SVAR) analysis, illustrating that food price shocks have a larger and
more persistent effect on expectations compared to a “representative” inflation shock. Finally,
we augment the canonical New-Keynesian model with behavioural expectations that capture
our empirical findings and show that monetary policy should respond more aggressively to food
price shocks. 
Length: 54
Creation-Date: 2024-10
File-URL: http://dipartimenti.unicatt.it/economia-finanza-def135.pdf
File-Format: Application/pdf
File-Function: First version, 2024
Number: def135
Classification-JEL: D10, D84, E31, E52, E58, E61. 
Keywords: Inflation Expectations, Inflation Perceptions, Monetary Policy.
Handle: RePEc:ctc:serie1:def135