“Our social‑media index based on posts from X is a powerful early-warning system for real inflation –
considerably improving short-run forecasting,” says Benjamin Born, from the EPoS Economic Research Center
who built the index with his colleagues. The researchers used a data set comprising more than 12 million
German-language posts related to “inflation” from over one million users.
“Gauging inflation expectations is important because today’s spending decisions are based on what people
think the price level will be tomorrow,” says Born. “Our high-frequency measurement index detects shifts in
inflation dynamics fast.”
Inflation expectations hit consumer wallets and financial markets
When the index rises, households cut spending soon afterwards, especially on purchases they can delay or
replace, the researchers find. This is a familiar economic pattern: When people expect higher inflation, they buy
fewer non-essential goods such as electronics, furniture or travel. Companies operating in such sectors will
experience lower stock market returns as demand for their goods declines.
Index falls after ECB move
The new index also reacts to policy changes of the European Central Bank: After unexpected monetary
tightening, the indicator falls within about a week, particularly in times of high inflation. “Compared to
traditional survey methods, our index adjusts much faster,” says Born. “As inflation expectations can change
quickly, indicators must keep pace.”
Concerns about “affordability” in the US
In the US, people’s worries about rising costs of living are on top of the political agenda. “Concerns of US voters
are just the most recent example highlighting the importance to track inflation expectations,” says Born. “In
today’s world, policymakers should generally use high-frequency, real-time indicators such as our tweet-based
index to detect shifts in inflation expectations quickly. This helps them to evaluate the impact of policy
announcements and adjust communication if necessary.”