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Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations


Using novel survey evidence on consumer inflation expectations disaggregated by personal consumption expenditure (PCE) categories, we document the paradox that consumers' aggregate inflation expectations usually exceed any individual category expectation. We explore procedures for aggregating category inflation expectations, and find that the inconsistency between aggregate and aggregated inflation expectations rises with subjective uncertainty and is systematically related to socioeconomic characteristics. Overall, our results are inconsistent with the notion that consumers' aggregate inflation expectations comprise an expenditure-weighted sum of category beliefs. Moreover, aggregated inflation expectations explain a greater share of planned consumer spending than aggregate inflation expectations.

Keywords: Household expectations, Survey, Sectoral expectations, Inflation expectations
JEL codes: C83, E31, E52.


Suggested citation: Dietrich, Alexander M., Edward S. Knotek II, Kristian Ove R. Myrseth, Robert W. Rich, Raphael S. Schoenle, and Michael Weber. 2022. "Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations." Working Paper No. 22-20. Federal Reserve Bank of Cleveland. https://doi.org/10.26509/frbc-wp-202220.

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