Learning from high inflation: inflation literacy after the 2021-2023 inflation surge

In the last two years Germany and the euro area as whole have experienced unprecedently high inflation rates. Recent literature, e.g. Pfäuti (2023) shows that households’ attention towards inflation increases in times when inflation significantly rises above a certain threshold. We want to study whether experiencing a prolonged period of high inflation rates prompts households to learn (more) about inflation, its effects on debt and wealth, as well as strategies to hedge against inflation. E.g. recent literature in financial literacy shows that inflation literacy positively correlates with experiencing higher inflation (Beckmann and Kiesl-Reiter, 2023). Furthermore, financial literacy and inflation literacy in particular, are strongly predictive of financial behavior and well-being (Lusardi and Streeter, 2023).

To this end, we propose several questions to comprehensively measure financial literacy and knowledge about inflation in particular. Among others, we ask respondents about their understanding of the impact inflation has on different asset classes. In addition, we explore the mental models households have about inflation, contributing to a novel strand of literature on consumer narratives (e.g. Andre et al, 2022, Binetti et al, 2024). Finally, to test whether knowledge about inflation maps into financial choices, we would like to elicit consumers’ changes in their portfolio as response to the higher inflation rates over the past two years.