Inflation Levels and (In)Attention

Abstract

Abstract Inflation expectations are key determinants of economic activity and are central to the current policy debate about whether inflation expectations will remain anchored in the face of recent pandemic-related increases in inflation. This article explores evidence of inattention by constructing two novel and direct measures of consumers’ inattention, and documents greater attention when inflation is high. This relationship can explain a substantial portion of the flattening of the Phillips curve and also suggests the possibility of upward attention-price spirals.