Question

Explain the influence of inflationary expectations on consumption expenditure​

Answer 1

When compared to other households, households who predict an increase in inflation are 8 percent more willing to spend on durable goods. The findings show that fiscal and monetary policy measures aimed at inducing higher inflation expectations may be effective in boosting consumer spending.

Answer 2

Inflationary expectations influence consumption expenditure by making people to buy more of a product when it is considered to be cheaper than when the price gets increased.

Inflationary expectations are simply expectations that the prices of goods and services may be increased in the future.

When there are inflationary expectations about a particular good, people would raise their expenditure on that particular item before the price soars.

For example, if the price of butter is expected to rise next week, lots of people would want to stock up on butter today that it is cheaper, to avoid buying at a much higher price.

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