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The Role of Inflation Perceptions in Consumer Inflation Expectations: Evidence from the Euro Area

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Abstract

Using data on euro-area household inflation forecasts from the European Commission Consumer Survey, we show that households' perceptions of recent price changes play a key role in the formation of their inflation expectations. Such a relationship remains robust when we account for specific inflation components, household characteristics, and macroeconomic conditions, even though the perceptions-expectations relationship is heterogeneous across countries. These results highlight the importance of perceptions about inflation for the conduct of monetary policy.

Suggested Citation

  • Matthieu Bussière & Johanna Gilbert & Olesya V. Grishchenko, 2026. "The Role of Inflation Perceptions in Consumer Inflation Expectations: Evidence from the Euro Area," Finance and Economics Discussion Series 2026-038, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:103378
    DOI: 10.17016/FEDS.2026.038
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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