How Do Households Form Inflation and Wage Expectations?

Anthony Brassil, Yahdullah Haidari, Jonathan Hambur, Gulnara Nolan and Callum Ryan
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Yahdullah Haidari: Reserve Bank of Australia
Jonathan Hambur: Reserve Bank of Australia
Gulnara Nolan: Reserve Bank of Australia
Callum Ryan: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper explores the formation of households' wage and inflation expectations using a common dataset and framework, documenting a number of stylised facts. We find that households tend to form wage and inflation expectations somewhat differently. Households associate higher wages growth with good economic outcomes, but higher inflation with worse economic outcomes. Wages expectations also tend to be somewhat more forward looking, while inflation expectations are more backward looking, especially for lower income households, and place a disproportionate weight on past fuel prices. These findings paint a picture of households having a somewhat 'supply-side' view of inflation, where shocks that push up inflation also weaken the economy, but a more 'demand-side' view of wages, where shocks that push up wages also strengthen the economy, which may make communication of monetary policy and the outlook more challenging.

Keywords: inflation expectations; wage growth (search for similar items in EconPapers)
JEL-codes: D84 E31 J31 (search for similar items in EconPapers)
Date: 2024-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-lma and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2024-07

DOI: 10.47688/rdp2024-07

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