IDEAS home Printed from https://ideas.repec.org/p/bca/bocadp/25-18.html

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://doi.org/10.34989/sdp-2025-18
    File Function: Abstract
    Download Restriction: no
    File URL: https://www.bankofcanada.ca/wp-content/uploads/2025/12/sdp2025-18.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.34989/sdp-2025-18?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Boneva, Teodora & Golin, Marta & Kaufmann, Katja Maria & Rauh, Christopher, 2022. "Beliefs about Maternal Labor Supply," IZA Discussion Papers 15788, IZA Network @ LISER.
    2. Dräger, Lena & Lamla, Michael J. & Pfajfar, Damjan, 2020. "The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences," Hannover Economic Papers (HEP) dp-666, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, revised Feb 2023.
    3. Anahit Matinyan & Ardash Kilejian & Gevorg Minasyan & Aleksandr Shirkhanyan, 2025. "The Role of Information in Shaping Inflation Expectations and Perceptions: A Survey Experiment," Working Papers WP-2025-02, Central Bank of Armenia.
    4. Fatemeh Mokhtarzadeh & Luba Petersen, 2021. "Coordinating expectations through central bank projections," Experimental Economics, Springer;Economic Science Association, vol. 24(3), pages 883-918, September.
    5. Weber, Michael & Gorodnichenko, Yuriy, 2021. "Fiscal Policy And Households’ Inflation Expectations: Evidence From A Randomized Control Trial," CEPR Discussion Papers 15821, C.E.P.R. Discussion Papers.
    6. Dräger, Lena, 2023. "Central Bank Communication with the General Public," Hannover Economic Papers (HEP) dp-713, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    7. Sara Suarez-Fernandez & Maria Jose Perez-Villadoniga & Juan Prieto-Rodriguez, 2018. "Are We (Un)Consciously Driven by First Impressions? Price Declarations vs. Observed Cinema Demand when VAT Increases," ACEI Working Paper Series AWP-02-2018, Association for Cultural Economics International, revised Jul 2018.
    8. Maite D. Laméris & Richard Jong-A-Pin & Rasmus Wiese, 2018. "An Experimental Test of the Validity of Survey-Measured Political Ideology," CESifo Working Paper Series 7139, CESifo.
    9. Pooja Kapoor & Sujata Kar, 2022. "A Critical Evaluation of the Consumer Confidence Survey from India," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 172-198.
    10. Hayo, Bernd & Méon, Pierre-Guillaume, 2023. "Measuring Household Inflation Perceptions and Expectations: The Effect of Guided vs Non-Guided Inflation Questions," Journal of Macroeconomics, Elsevier, vol. 78(C).
    11. Libertad González & Luis Guirola & Blanca Zapater, 2026. "Partisan abortions," Journal of Population Economics, Springer;European Society for Population Economics, vol. 39(1), pages 1-26, March.
    12. Ellison, Martin & Macaulay, Alistair, 2021. "A rational inattention unemployment trap," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    13. Carola Binder & Tucker S. Mcelroy & Xuguang S. Sheng, 2022. "The Term Structure of Uncertainty: New Evidence from Survey Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(1), pages 39-71, February.
    14. Cornand, Camille & Hubert, Paul, 2020. "On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    15. Alistair Macaulay & James Moberly, 2022. "Heterogeneity in imperfect inflation expectations:theory and evidence from a novel survey," Economics Series Working Papers 970, University of Oxford, Department of Economics.
    16. Camille Cornand & Paul Hubert, 2021. "Information frictions in inflation expectations among five types of economic agents," Working Papers halshs-03351632, HAL.
    17. Alberto Prati, 2024. "The Well‐Being Cost of Inflation Inequalities," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 70(1), pages 213-238, March.
    18. Claudio Michelacci & Luigi Paciello, 2020. "Aggregate Risk or Aggregate Uncertainty? Evidence from UK Households," EIEF Working Papers Series 2006, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2020.
    19. Pooja Kapoor & Sujata Kar, 2023. "A review of inflation expectations and perceptions research in the past four decades: a bibliometric analysis," International Economics and Economic Policy, Springer, vol. 20(2), pages 279-302, May.
    20. Dräger, Lena & Gründler, Klaus & Potrafke, Niklas, 2025. "Political shocks and inflation expectations: Evidence from the 2022 Russian invasion of Ukraine," Journal of International Economics, Elsevier, vol. 153(C).

    More about this item

    Keywords

    ;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocadp:25-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.