We study the long-term effects of inflation surges on inflation expectations. German households living in areas with higher local inflation during the hyperinflation of the 1920s expect higher inflation today, after partialling out determinants of historical inflation and current inflation expectations. Our evidence points towards transmission of inflation experiences from parents to children and through collective memory. Differential historical inflation also modulates the updating of expectations to current inflation, the response to economic policies affecting inflation, and financial decisions. We obtain similar results for Polish households residing in formerly German areas. Overall, our findings are consistent with inflationary shocks having a long-lasting impact on attitudes towards inflation.

Using randomized control trials (RCTs) applied over time in different countries, we study how the economic environment affects how agents learn from new information. We show that as inflation has recently risen in advanced economies, both households and firms have become more attentive and informed about inflation, leading them to respond less to exogenously provided information about inflation and monetary policy. We also study the effects of RCTs in countries where inflation has been consistently high (Uruguay) and low (New Zealand) as well as what happens when the same agents are repeatedly provided information in both low- and high-inflation environments (Italy). Our results broadly support models in which inattention is an endogenous outcome that depends on the economic environment.

We demonstrate that security returns consistently respond to headline-CPI shocks during the CPI month but react more to core-CPI news on announcement days. This pattern is evident in nominal bonds, commodities, and cross-sectional stocks. Firms with negative core betas show higher growth potential and longer cash flow duration. Consistently, with rising inflation, these firms see worse sales growth, cash flow, and lower IBES long-term growth forecasts. We show that a long-short portfolio based on core-focused announcement-day inflation beta predicts upcoming inflation shocks, including CPI innovations and economists' forecasting errors, and is not absorbed by information from the Treasury and commodity markets. This core-focused inflation portfolio is an unparalleled predictor for core inflation, particularly during the inflation spikes of 2021 and 1973, and in periods of high inflation risk and accommodating monetary policies.