Inflation Expectations

Abstract

Inflation is widely regarded as a menace that damages business, and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low, and expectations of falling prices are dangerous, too, in other ways. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of international experts on inflation expectations, to debate different aspects of the issues involved. The main focus of the volume is how to get as much information as possible from surveys of inflation expectations, how best to study it and summarize it, react to it, and what the evidence tells us about the main factors that make people's varying, and often erroneous, inflation forecasts evolve over time.A number of factors have led practitioners and observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing another 25 countries, across all five continents, including Brazil, Canada and the UK. Still more significantly, the European Central Bank, the Federal Reserve System in the United States, and the Bank of Japan are among leading monetary institutions now contemplating some move, or a further move, in the same direction. A second factor is the large reduction in actual rates of inflation that has been observed in most countries over the last 15 years.These considerations underscore the critical -and largely under-recognizedimportance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, edited by Peter Sinclair, should prove very important for policy makers and monetary economists alike.

Inflation expectations of households: do they influence wage-price dynamics in India?

“…Inflation and unemployment are the two prominent sources of economic misery in an economy. High inflation expectations, by shifting the short-run Phillips curve up, can give rise to either higher inflation at unchanged rate of unemployment or higher unemployment at unchanged rate of inflation (Sinclair, 2009). A credible central bank committed to the price stability objective could anchor inflation expectations and thereby reduce economic misery on both counts.…”

Are Individual Survey Expectations Internally Consistent?

“…Expectations, which are crucial in price and wage formation and in the monetary policy transmission mechanism, have been widely analyzed using survey data (see Pesaran and Weale (2006) and Sinclair (2010) for basic references of survey-based studies). Since most of the studies have explored survey expectations on an aggregate level, we do not exactly know what happens behind the mean values of forecasts.…”