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Inflation expectations in the wake of the war in Ukraine

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  • Afunts, Geghetsik
  • Cato, Misina
  • Schmidt, Tobias

Abstract

Russia's invasion of Ukraine is posing a range of new challenges to the global economy, including affecting the inflation expectations of individuals. In this paper, we aim to quantify the effect of the invasion on short- and long-term inflation expectations of individuals in Germany. We use microdata from the Bundesbank Online Panel - Households (BOP-HH), for the period from February 15th to March 29th, 2022. Treating the unanticipated start of the war in Ukraine on the 24 th of February 2022 as a natural experiment, we find that both short- and long-term inflation expectations increased as an immediate result of the invasion. Long-term inflation expectations increased by around 0.4 percentage points, while the impact on short-term inflation expectations was more than twice as large - around one percentage point. Looking into the possible mechanisms of this increase, we suggest that it can be partially attributed to individuals' fears of soaring energy prices and increasing pessimism about economic trends in general. Our results indicate that large economic shocks can have a substantial impact on both short and long-term inflation expectations.

Suggested Citation

  • Afunts, Geghetsik & Cato, Misina & Schmidt, Tobias, 2023. "Inflation expectations in the wake of the war in Ukraine," Discussion Papers 03/2023, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:032023
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    References listed on IDEAS

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    1. Carola Binder, 2020. "Coronavirus Fears and Macroeconomic Expectations," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 721-730, October.
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    5. Lena Dräger & Klaus Gründler & Niklas Potrafke, 2022. "Political Shocks and Inflation Expectations: Evidence from the 2022 Russian Invasion of Ukraine," ifo Working Paper Series 371, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
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    Cited by:

    1. Lena Dräger & Klaus Gründler & Niklas Potrafke, 2022. "Political Shocks and Inflation Expectations: Evidence from the 2022 Russian Invasion of Ukraine," ifo Working Paper Series 371, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Stanisławska, Ewa & Paloviita, Maritta, 2024. "Heterogeneous responsiveness of consumers’ medium-term inflation expectations," Economics Letters, Elsevier, vol. 237(C).
    3. Grebe, Moritz & Kandemir, Sinem & Tillmann, Peter, 2024. "Uncertainty about the war in Ukraine: Measurement and effects on the German economy," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 493-506.
    4. Meinerding, Christoph & Poinelli, Andrea & Schüler, Yves, 2023. "Households’ inflation expectations and concern about climate change," European Journal of Political Economy, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    inflation expectations; Russian invasion of Ukraine; survey; natural experiment;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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