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Formation, heterogeneity and theory consistency of inflation expectations in the euro area

Author

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  • Athanasios Angelis

    (University of Patras, PwC)

  • Athanasios Tagkalakis

    (Bank of Greece, University of Patras)

Abstract

Using microdata from the European Consumer Survey (CES) for 11 European countries and 53 months, we investigate the formation and heterogeneity of inflation expectations as well as their theory consistency with the Phillips curve in the euro area, and across countries and demographic groups. We examine how individuals in the euro area form their inflation expectations. Our findings show that people place significant weight on their current perception of inflation. Past experiences with prices also play a role, though to a lesser extent. Importantly, the formation of expectations tends to be forward-looking rather than backward-looking. A similar pattern emerges when we analyze the consistency of these expectations and perceptions with the Phillips Curve theory. Individuals in the euro area generally do not hold theory-consistent expectations regarding inflation. We find notable variations across gender, age, income, education level, household size regarding the formation of inflation expectation.

Suggested Citation

  • Athanasios Angelis & Athanasios Tagkalakis, 2025. "Formation, heterogeneity and theory consistency of inflation expectations in the euro area," Working Papers 343, Bank of Greece.
    • Handle: RePEc:bog:wpaper:343
    DOI: 10.52903/wp2025343
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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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