The Inflation Attention Threshold and Inflation Surges (Revised)

EMPCT Working Paper Series No. 2025-06
90 pages | PDF Download | PDF in Browser

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Citation: Oliver Pfäuti, August 2025

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Abstract
The recent inflation surge brought inflation back on people’s minds. I quantify when and
how much attention to inflation changes and derive the macroeconomic implications of these
attention changes. I estimate an attention threshold at an inflation rate of 4%, that attention
doubles when inflation exceeds this threshold, and that supply shocks have stronger and more
persistent effects on inflation in times of high attention. Developing a model featuring the
attention threshold, I show that the observed attention changes offer a joint explanation for
the recent inflation surge, its interplay with inflation expectations, and the long last mile of
disinflation.