The Effect of Inflation Uncertainty on Household Expectations and Spending

We use a new Canadian household survey to examine how inflation uncertainty influences inflation expectations and spending. Through randomized information interventions, we provide inflation statistics with or without second moments, creating variations in households' inflation uncertainty. All information types effectively lower inflation expectations and uncertainty. While communicating inflation uncertainty does not affect expectations or uncertainty levels, it increases the probability assigned to expected inflation near communicated ranges. Using Nielsen IQ Homescanner data, we find that higher inflation expectations and uncertainty reduce household spending on goods. Communicating inflation statistics with ranges increases spending by lowering expectations and reducing uncertainty.