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The relationship between inflation expectations survey data and inflation

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  • Satish Ranchhod

    (Reserve Bank of New Zealand)

Abstract

Inflation expectations play an important role in shaping the inflation consequences of economic activity. Hence, they are of special importance for monetary policy. Survey measures of inflation expectations are available, but whether they are a good representation of true beliefs is a moot point. Survey measures of inflation expectations often do not track well with realised inflation rates, sometimes producing large forecast errors. Indeed, survey measures of inflation expectations often tend to track better with current or past inflation than with future inflation, raising questions as to their usefulness as proxies for true expectations. This article examines the relationship between surveyed inflation expectations and inflation in New Zealand since inflation stabilised in the early 1990s. It turns out that while survey data may be inaccurate predictors of the level of inflation, they can still provide useful directional information regarding near-term inflationary pressures. Survey data can be used to supplement other economic indicators, giving a better indication of future inflation.

Suggested Citation

  • Satish Ranchhod, 2003. "The relationship between inflation expectations survey data and inflation," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 66, December.
    • Handle: RePEc:nzb:nzbbul:december2003:2
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2003/2003dec66-4ranchhod.pdf
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    Cited by:

    1. Christina Leung, 2009. "The demographics of household inflation perceptions and expectations," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 34-42, June.
    2. Swapnil Virendra Chalwadi & Preeti Tushar Joshi & Nitin Mohanlal Sharma & Chaitanya Gite & Sangita Salve, 2023. "Gender Differences in Inflation Expectations: Recent Evidence from India," Administrative Sciences, MDPI, vol. 13(2), pages 1-14, February.
    3. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
    4. Hakan Kara & Hande Kucuk Tuger, 2005. "Some Evidence on the Irrationality of Inflation Expectations in Turkey," Working Papers 0512, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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