August 14, 2025, Filed Under: Working PaperThe Inflation Attention Threshold and Inflation Surges (Revised) EMPCT Working Paper Series No. 2025-0690 pages | PDF Download | PDF in Browser Citation: Oliver Pfäuti, August 2025 AbstractThe recent inflation surge brought inflation back on people’s minds. I quantify when andhow much attention to inflation changes and derive the macroeconomic implications of theseattention changes. I estimate an attention threshold at an inflation rate of 4%, that attentiondoubles when inflation exceeds this threshold, and that supply shocks have stronger and morepersistent effects on inflation in times of high attention. Developing a model featuring theattention threshold, I show that the observed attention changes offer a joint explanation forthe recent inflation surge, its interplay with inflation expectations, and the long last mile ofdisinflation.
