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Title: Greater than the sum of its parts: Aggregate vs. aggregated inflation expectations Authors:  Edward Knotek - Federal Reserve Bank of Cleveland (United States) [presenting]
Abstract: Using novel survey evidence on consumer inflation expectations for personal consumption expenditure (PCE) categories, we document the paradox that consumers' aggregate inflation expectations differ systematically from an expenditure-weighted sum of their category beliefs, with the ``whole'' (aggregate inflation expectations) usually greater than the sum of its parts. The inconsistency between aggregate and aggregated inflation expectations rises with subjective uncertainty and is related to socioeconomic characteristics. We show that behavioral weighting schemes that focus on food and gasoline prices or a small number of categories tend to align more closely with aggregate inflation expectations than an expenditure-weighted sum of category beliefs. The choice between aggregate and aggregated inflation expectations has consequential policy implications for monitoring consumer inflation expectations and consequential economic implications: aggregated inflation expectations explain a greater share of planned consumer spending than aggregate inflation expectations, suggesting that the former are more important for consumer decision-making.