Inflation Expectations of Savers and Borrowers

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