Consumers rely on their shopping experiences to form beliefs about inflation. In other words, they learn by shopping. I study the consequences of this information friction for the transmission of macroeconomic shocks. I introduce learning by shopping in the benchmark New Keynesian model and show that this friction anchors households’ beliefs about inflation. However, the degree of anchoring is endogenous and depends on the model’s structural features, including the monetary policy stance. Learning by shopping propagates the impact of demand shocks on output, even when prices are flexible. Price stickiness exacerbates this propagation, and the interaction of both frictions can be larger than the sum of the effects of each friction considered separately. Moreover, learning by shopping makes the slope of the Phillips curve a function of the degree of anchoring. For this reason, a more hawkish monetary policy can simultaneously anchor households’ inflation expectations, flatten the Phillips curve, and lower the volatility and persistence of inflation. The model suggests that such a policy also has an unintended consequence: It makes the economy more vulnerable to exogenous shifts in aggregate demand.

I propose a model of expectation formation based on shopping experiences. In the model, households acquire information about prices while shopping and use this information to form beliefs about current and future aggregate inflation. Obtaining information is costly, and shoppers choose it optimally to trade its costs and benefits. The model makes predictions relating household’s characteristics with their shopping experiences and their beliefs about aggregate inflation. I test these predictions using microdata from the New York Fed’s Survey of Consumer Expectations and find evidence supporting the model’s predictions. First, households’ expectations about aggregate inflation respond systematically to their expectations about individual prices, and the strength of this response is proportional to the expenditure share of that good. Second, individual forecasts about prices are predicted by past forecasts after controlling extensively for sources of public information. Third, households that spend more on goods like gasoline are relatively better forecasting the price of those goods.