Tiff Macklem
Bank of Canada

Central bankers have been largely successful at taming inflation, yet in the wake of the post-pandemic surge in prices, consumer inflation expectations remain elevated. Improving central bank communications with the general public can help tame those expectations, says a new paper from the Bank for International Settlements (BIS).

According to a bulletin from BIS staffers, a recent international survey of 29 economies finds that household inflation expectations remain elevated in both advanced and emerging markets, even as actual inflation rates have largely been brought down to central bankers’ target levels.

“On average across countries, households expect inflation over the next 12 months to be about 8%, significantly higher than the current 2.4% average inflation level,” it reported, with expectations ranging from a low of 4% to a high of 11%.

Amid these elevated expectations, households also report being more dissatisfied with the economy.

“The influence of inflation developments on consumer sentiment highlights the importance of understanding the formation of household perceptions and expectations,” it noted.

To some extent, household perceptions are still being heavily driven by the high inflation that emerged following the pandemic, it suggested.

“Significant price hikes accumulating over a prolonged period raise the cost of salient items and risk shaping households’ views about inflation dynamics,” the paper said.

In turn, these inflated expectations also reflect the communications challenge facing central bankers, the paper said, noting that “households with greater knowledge of central banks and their price stability mandates report lower inflation expectations.”

Yet most households lack a basic understanding of the central bank and its role in the economy.

And while financial market participants closely watch every signal from central bankers, it can be tougher to reach ordinary households — particularly given the rise of social media — and reshape their inflation expectations, it said.

“Changing media consumption patterns — especially among younger generations — amplify the communications challenges, requiring central banks to become familiar with social media to ensure messages are both heard and understood,” the paper said.

“Establishing effective communications with the broad public requires having a presence on these platforms and tailoring messages across a wide spectrum of channels,” it concluded.