Inflation expectations in Spain: The Spanish PwC Survey

We examine the predictive ability, the consistency properties, and the possible driving forces of inflation expectations, using a survey conducted in Spain by PwC, among a panel of experts and entrepreneurs. When analysing the headline inflation rate, our results suggest that the PwC panel has some forecasting ability for time horizons from 3 to 9 months, improving when it comes to predicting the core inflation rate. Nevertheless, the results indicate that predictions made by survey participants are neither unbiased nor efficient predictors of future inflation rates, regardless of the measures of inflation used. As for the consistency properties of the inflation expectations formation process, we find that panel members form stabilising expectations in the case of the headline inflation rate, both in the short and in the long-run, although in the case of the core inflation rate, consistency remains indeterminate. Finally, we find that inflation expectations are very persistent and that they appear to incorporate the information content of some macroeconomic variables (current core inflation and growth rate, the USD/EUR exchange rate, the European Central Bank (ECB) infla- tion target, and changes in the ECB official short-term interest rate).