Cleveland Fed, Report: Low Passthrough from Inflation Expectations to Income Growth Expectations, Why People Dislike Inflation

“This paper relies on a novel experimental setup to study the direction of causality between consumers’ inflation expectations and their income growth expectations. Based on the results from a large, nationally representative survey, we find that the rate of passthrough from consumers’ inflation expectations to income growth expectations is incomplete, on the order of only 20 percent. We do not find a statistically significant effect in the other direction. Moreover, the degree of passthrough varies systematically with our respondents’ socioeconomic and demographic characteristics. Specifically, we find a higher passthrough for higher-income individuals and for male consumers. The passthrough for lower-income and for female consumers is not statistically different from zero.”