Analysis from the forthcoming Bank of Israel Annual Report: Israeli households’ attention to inflation and its impact on their expectations

One of the consequences of high and prolonged inflation is an increase in attention—households’ and firms’ awareness and internalization of prices changes.

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• One of the consequences of high and prolonged inflation is an increase in attention to price changes, which leads to greater weight being given to inflation when making decisions.
• We find some evidence that since annual inflation exceeded the upper bound of the target range, households’ have been paying increased attention to inflation, and a link between prices changes during the month and households’ inflation expectations has started to take root.