Emerald Management Review:
Perceptions and expectations of price changes and inflation: A review and conceptual framework

Abstract:

Purpose - To review and synthesize the dynamics of individuals' perceptions of price changes and inflation, and their expectations.

Design/methodology/approach - Presents a framework of the influences of exogenous forces on prices and inflation, and their effect on personal income directly or via social amplification on individual perceptions. Adds the effect of perceptions, economic forecasts and social amplification on expectations, and the effect of perceptions and expectations on behaviour. Reviews studies and surveys of bounded rationality, of perceptions of inflation and price changes, of recall of specific product and service prices, and of expectations.

Findings - Finds that assuming bounded rationality makes sense of apparently irrational inflationary expectations, provided the theory of rational expectations is set aside. Indicates that a model of prospective estimation can project perceived inflation forwards.

Research limitations/implications - Calls for research into mental models of the economy; into the use of expected income to evaluate price changes; into the use of personal evaluations in asjusting the official inflation rate; and into the use of the social amplification of risk framework by layering influences of the media, or by specific case studies at national level. Proposes study of how inflation memories are updated, of how rationality disappears from expectations, and the mismatch between consumer experience and official price indexes.

Originality/value - Presents an intriguing review of inflation studies from 1986 and interesting research topics for the future. Ideal for the student of prices.

Keywords:

Article Type:

Literature review

Reference:

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