Research / BFI Working PaperMay 30, 2024

Household Inflation Expectations: An Overview of Recent Insights for Monetary Policy

Francesco D’Acunto, Evangelos Charalambakis, Dimitris Georgarakos, Geoff Kenny, Justus Meyer, Michael Weber

This paper discusses the recent wave of research that has emphasized the importance of measures of consumers’ inflation expectations. In contrast to other measures of expected inflation, such as for experts or financial market participants, consumers’ inflation expectations capture the broader distribution of societal beliefs about inflation. This research has revealed very significant deviations from traditional assumptions about rationality in consumers’ expectations formation. However, households do act on their beliefs about inflation, though in heterogeneous ways that can depart from the predictions of conventional economic models. Recent euro area experiences highlight the importance of tracking the degree of anchoring in consumers’ inflation expectations in a way that considers their inherent complexity, heterogeneity, and subjectivity. On average, consumers’ medium and longer-term expectations deviate noticeably in levels from central bank targets and, in contrast with expert expectations, often co-move more closely with shorter-term inflation news. By stepping up their engagement with the wider public, central banks may be able to influence expectations by building up greater knowledge and trust and thereby support more effective monetary transmission. Communication efforts need to be persistent because central banks must compete with many other demands on consumers’ attention.

More Research From These Scholars

BFI Working Paper Jul 24, 2023

ChatGPT and Corporate Policies

Manish Jha, Jialin Qian, Michael Weber, Baozhong Yang
Topics:  Technology & Innovation
BFI Working Paper Mar 21, 2022

Anomaly or Possible Risk Factor? Simple-To-Use Tests

Benjamin Holcblat, Abraham Lioui, Michael Weber
Topics:  Financial Markets
BFI Working Paper Aug 3, 2018

Price Rigidity and the Origins of Aggregate Fluctuations

Ernesto Pasten, Raphael Schoenle, Michael Weber
Topics:  Fiscal Studies, Monetary Policy