Inflation Expectations in Action: Exploring Agents’ Behaviour in a Period of High Inflation

Naveen Rai, Hayley Touchburn and Matt West

No 2025-18, Discussion Papers from Bank of Canada

Abstract: Inflation expectations are important to monetary policy decision-makers. The period of high inflation after the pandemic provides a useful context for exploring how inflation expectations influence the behaviours of firms and consumers. Using survey evidence, we examine how firms and consumers react to their inflation expectations. We find that firm price- and wage-setting behaviours were positively associated with high inflation expectations over the period. These behaviours could reinforce inflation. Consumers’ spending and labour market decisions tend to show increased labour supply and reduced consumption in response to high inflation expectations, which could cool rather than reinforce future inflation

Keywords: Inflation; and; prices (search for similar items in EconPapers)
JEL-codes: C8 C83 D8 D84 E3 E31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2025-12
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