Inflation and Perception: Drivers of Hungarian Households' Expectations

Timea Varnai () and Aron Szakaly ()
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Timea Varnai: Magyar Nemzeti Bank
Aron Szakaly: Magyar Nemzeti Bank

Financial and Economic Review, 2025, vol. 24, issue 4, 65-95

Abstract: This study analyses the evolution of the Hungarian households' inflation expectations in the period between 2015 and 2025 based on household questionnaire data, using an error correction model framework. The waves of inflation experienced in the early 2020s resulted in a change in the formation of inflation expectations. The anchoring of expectations during the period of high inflation increased in importance: households became more forward-looking, and the role of inflation perception in the formation of expectations decreased. As regards instantaneous effects, it is apparent that food price fluctuations, EUR/HUF exchange rate changes, volatility - which reflects economic uncertainty among other factors - and households' decreasing confidence in the economy amplified fears of inflation more than they did during the low-inflation period of 2015–2019. The impact of inflation forecasts on households' inflation expectations increased. Exchange rate stability became a key factor in anchoring households' expectations. The effects and their changes, as identified by our analyses, are robust to the highlighted socio-demographic groups as well.

Keywords: household behaviour; inflation expectations; perceived inflation; questionnaire-based survey (search for similar items in EconPapers)
JEL-codes: C32 C83 D12 D84 E1 E31 E71 (search for similar items in EconPapers)
Date: 2025
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