Does the tail wag the dog? A closer look at recent movements in the distributions of professional forecasters’ inflation expectations

The strong rise in inflation has renewed attention on longer-term inflation expectations. The distribution of individual longer-term inflation expectations from the ECB Survey of Professional Forecasters has recently recentred around 2%, although some respondents have lately raised their inflation expectations clearly above 2%. Some commentators have argued that movements in the upper “tails” of the inflation expectations’ distribution might signal a possible de-anchoring of expectations. This box takes a closer look at recent movements in long-term inflation expectations, especially of those forecasters currently in the upper tail of the distribution. We find that (a) historically, this tail group's longer-term inflation expectations have been higher, more volatile and more sensitive to realised inflation than the expectations of the rest of respondents, (b) respondents in this tail group perceive the current inflation spike to be more persistent, and (c) the evidence suggests that their expectations have not led movements in those of the rest of the professional forecasters. JEL Classification: E3, D83, D84