To JUDGE FROM THE RECENT PRONOUNCEMENTS of the forecasting fraternity, uncertainty about the behavior of consumers is at the heart of differences in view about macroeconomic policy at the present time. The inability of the economic recovery to gather sufficient force to bite into unemployment rates has been widely attributed to the continued hesitancy and caution of consumers, as reflected in exceptionally high ratios of personal saving to disposable income. And differences of opinion about the probable vigor or sluggishness of the recovery are due in considerable part to differences in judgments about the probable consumer response to the unfolding economic situation. One of the major sources of uncertainty about consumer reactions concerns the way that price inflation, both expected and realized, influences consumer decisions about spending or saving. This paper poses a number of questions and provides some tentative answers:
