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The anchoring of long-term inflation expectations of consumers: insights from a new survey

Gabriele Galati (), Richhild Moessner and Maarten van Rooij ()

No 936, BIS Working Papers from Bank for International Settlements

Abstract: We provide new evidence on the level and probability distribution of consumers' longterm expectations of inflation in the euro area and the Netherlands, using a representative Dutch survey. We find that consumers' long-term (ten years ahead) euro area inflation expectations are not well anchored at the ECB's inflation aim. First, median long-term euro area inflation expectations are 4%, 2pp above the ECB's inflation aim of 2%. Second, individual probability distributions of long-term euro area inflation expectations show that expected probabilities of higher inflation (2pp or more above the ECB's inflation aim) are much higher, at 28% on average, than those of lower inflation (2pp or more below the ECB's inflation aim), at 12%. This suggest that the de-anchoring of Dutch consumers' long-term euro area inflation expectations is mainly due to expected high inflation, rather than to expected low inflation (or deflation). This finding is in contrast to recent concerns by ECB monetary policymakers about a possible deanchoring of long-term inflation expectations on the downside. Furthermore, we find that consumers' long-term euro area inflation expectations are significantly higher if respondents have lower incomes. Based on measures of anchoring calculated directly from individual consumers' probability distributions of expected long-term inflation, namely the probability of inflation being close to target, the probability of inflation being far above target, and the probability of deflation, we also find that long-term euro area inflation expectations are better anchored for consumers with higher net household income.

Keywords: inflation; expectations (search for similar items in EconPapers)
JEL-codes: E31 E58 F62 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2021-04
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Working Paper: The anchoring of long-term inflation expectations of consumers: insights from a new survey (2020) Downloads
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