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Inflation and Perception: Drivers of Hungarian Households' Expectations

Author

Listed:
  • Timea Varnai

    (Magyar Nemzeti Bank)

  • Aron Szakaly

    (Magyar Nemzeti Bank)

Abstract

This study analyses the evolution of the Hungarian households' inflation expectations in the period between 2015 and 2025 based on household questionnaire data, using an error correction model framework. The waves of inflation experienced in the early 2020s resulted in a change in the formation of inflation expectations. The anchoring of expectations during the period of high inflation increased in importance: households became more forward-looking, and the role of inflation perception in the formation of expectations decreased. As regards instantaneous effects, it is apparent that food price fluctuations, EUR/HUF exchange rate changes, volatility - which reflects economic uncertainty among other factors - and households' decreasing confidence in the economy amplified fears of inflation more than they did during the low-inflation period of 2015–2019. The impact of inflation forecasts on households' inflation expectations increased. Exchange rate stability became a key factor in anchoring households' expectations. The effects and their changes, as identified by our analyses, are robust to the highlighted socio-demographic groups as well.

Suggested Citation

  • Timea Varnai & Aron Szakaly, 2025. "Inflation and Perception: Drivers of Hungarian Households' Expectations," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 24(4), pages 65-95.
    • Handle: RePEc:mnb:finrev:v:24:y:2025:i:4:p:65-95
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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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