Inflation Expectations and Household Spending: Different Patterns in Low- and High-Inflation Settings

Using multiple randomized controlled trials (RCTs) implemented through surveys of US households, I show that household spending responses to exogenous changes in inflation expectations depend on the inflation environment. In times of low inflation, higher inflation expectations arising from information treatments lead households to reduce their consumption of durable goods (the negative income/uncertainty effect dominates). In contrast, in times of high inflation, I find a sharp positive effect on durable goods spending after an exogenous shock to inflation expectations (intertemporal substitution effect dominates).