Central banks might want to start setting interest rates based on how much regular people are freaking out about the price of groceries.
SSRN · March 13, 2026 · 6393370
Why it matters
Families often fixate on the price of bread and milk as a signal for the entire economy, leading to biased inflation expectations. This research shows that even if these public fears are technically wrong, the economy remains more stable if the government reacts to these perceptions rather than just following 'pure' macroeconomic data.
From the abstract
Food prices are salient for households’ inflation perceptions and expectations at both the micro and macro levels. UK survey data indicate over 60% of households report food prices as very important for perceived inflation. These households exhibit a stronger correlation between perceived and expected inflation, reflecting backward-looking expectations. An SVAR with aggregate data shows food-price shocks generate larger and more persistent movements in expectations than “representative” inflatio