Inflation Expectations of Savers and Borrowers

We study individual level data from the NY Fed’s Survey of Consumer Expectations and show that agents’ inflation expectations, even controlling for demographic factors and expectations about the economic outlook, depend on the household's financial situation. In particular, there is a wedge between the expectations of savers and borrowers: savers have higher inflation expectations than borrowers. We make sense of this finding with a life-cycle model in which agents first borrow and then work to save for retirement, always having ambiguity about future inflation outcomes. The model also rationalizes the puzzle of the positive comovement between inflation expectations and unemployment expectations, first identified in Coibion et al. (2019).