Scarred by recent episodes of high inflation, households are girding for higher inflation than economists’ forecasts, and current rates, according to the results a new global survey from the Bank for International Settlements (BIS).
The latest quarterly report from the BIS presents the results of a novel international household survey that covered 31 countries, including 13 so-called “advanced” economies and 18 emerging markets, which finds that household inflation expectations are “consistently and significantly above prevailing inflation rates and professional forecasts.”
According to the survey, which was conducted in March and April, in the advanced economies, household inflation expectations are approximately double economists’ forecasts. The disparity is even greater in emerging markets.
“Overall, the survey results demonstrate that the upward bias in household inflation expectations relative to actual realizations as well as to professional forecasts is a truly global phenomenon,” the report said.
One reason for much higher household expectations may be driven by the finding that households are sensitive to the fact that prices have risen more rapidly in the post-pandemic period than they did previously and they “overestimate losses in real wages,” it noted.
In turn, these perceptions of stronger inflation “appear to be lifting inflation expectations, suggesting that temporary price level increases can have persistent effects on expectations,” the report said — noting that inflation expectations are “considerably higher among households that perceive a stronger surge in inflation.”
While households generally don’t blame central banks for the inflation surge — instead they attribute it to rising commodity prices and supply chain disruptions during the pandemic — they also have limited knowledge of the role of central banks, it noted.
Against the backdrop of elevated inflation expectations, the report said the survey “underscores the value in central banks engaging with wider public audiences to better anchor inflation expectations.”
And, with households increasingly relying on social media for information, the report said that the survey, “raises the question of whether central banks should enhance their engagement on these platforms to foster public understanding of their policies and achieve broader outreach.”
The survey also found that households tend to trust central banks more than they trust governments — and that most support central bank independence, the report noted.