Inflation expectations and consumption: Evidence from 1951

We use rich microdata from the 1951 Survey of Consumer Finances to study inflation expectations and consumption during the Korean War, in an episode when monetary policy was constrained. We provide the first detailed analysis of consumer inflation expectations from that era. Using survey measures of actual and expected spending on durables, cars, and homes at extensive and intensive margins, we show that the difference between consumption in 1950 and expected consumption in 1951 increases with expected inflation. Effect sizes are modest, even though household balance sheets were healthy and inflation was salient.