Data on consumer inflation are regularly published by statistical institutes, but it remains uncertain how well they are known by households. Using data from Banca d'Italia's Conjunctural Survey on Italian Household, this paper documents the extent to which their inflation and consumption expectations respond to information about current inflation at different stages of its cycle.
The analysis shows that, on average, households that are informed about the current level of inflation revise their expectations of future price growth upwards when inflation is rising and downwards when it is falling. Being informed also affects consumption expectations: knowledge of high inflation dampens expected spending, while low inflation encourages it, especially among the less affluent; households therefore adopt a supply-side perspective and associate higher inflation with a worsening economy.
