Inflation Expectations and the Effect on Consumption in Sweden

Abstract

This thesis examines how Swedish households’ inflation expectations affect consumption of durable goods, and how this relationship differs across households and inflation regimes. Using monthly micro data from the Economic Tendency Survey, from Sweden's National Institute of Economic Research, for the years 2003–2025, we use an ordered probit model to estimate the relationship between inflation expectations and consumption of durable goods, including demographic controls, inflation regime dummies and savings attitudes. The results show a robust, statistically significant negative relationship between higher inflation expectations and attitudes toward durable consumption. Our result is in contrast with the predictions of a standard consumption Euler‑equation, but can be explained by income‑ and risk‑based channels where households interpret higher inflation expectations as a sign of weaker economic prospects or policy credibility, leading to reduced spending. The negative relationship is generally consistent across gender, but some heterogeneity is observed across education, age, housing tenure, income, and region. Extending the model to include different inflation regimes, we find that the link between inflation expectations and consumption attitudes is strongest under relatively normal inflation (i.e., close to the target rate), weaker in low‑inflation periods and more negative in high-inflation periods. We also find that higher inflation expectations are also associated with more negative saving attitudes and a lower reported likelihood of saving.