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Inflation Expectations in Action: Exploring Agents’ Behaviour in a Period of High Inflation

Author

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  • Naveen Rai
  • Hayley Touchburn
  • Matt West

Abstract

Inflation expectations are important to monetary policy decision-makers. The period of high inflation after the pandemic provides a useful context for exploring how inflation expectations influence the behaviours of firms and consumers. Using survey evidence, we examine how firms and consumers react to their inflation expectations. We find that firm price- and wage-setting behaviours were positively associated with high inflation expectations over the period. These behaviours could reinforce inflation. Consumers’ spending and labour market decisions tend to show increased labour supply and reduced consumption in response to high inflation expectations, which could cool rather than reinforce future inflation

Suggested Citation

  • Naveen Rai & Hayley Touchburn & Matt West, 2025. "Inflation Expectations in Action: Exploring Agents’ Behaviour in a Period of High Inflation," Discussion Papers 2025-18, Bank of Canada.
    • Handle: RePEc:bca:bocadp:25-18
    DOI: 10.34989/sdp-2025-18
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    References listed on IDEAS

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    1. Olivier Armantier & Wändi Bruine de Bruin & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2015. "Inflation Expectations And Behavior: Do Survey Respondents Act On Their Beliefs?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 505-536, May.
    2. David Amirault & Sarah Miller & Matthieu Verstraete, 2022. "Has wage setting changed in Canada? Evidence from the pre-pandemic 2020 Wage-Setting Survey," Staff Analytical Notes 2022-10, Bank of Canada.
    3. Olivier Armantier & Wändi Bruine de Bruin & Giorgio Topa & Wilbert Klaauw & Basit Zafar, 2015. "Inflation Expectations And Behavior: Do Survey Respondents Act On Their Beliefs?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 505-536, May.
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    More about this item

    Keywords

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    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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