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Consumer inflation expectations before and after the 2022 inflation spike: the role of perceived and realised inflation

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  • Gerda Kirpson

Abstract

This paper examines how the formation of consumer inflation expectations in the euro area changed following the inflation spike in 2022, focusing on the relationship between expected, perceived and realised inflation. The study uses individual-level panel data from the European Central Bank’s Consumer Expectation Survey and employs a mixed-method approach to estimate fixed and random effects across two sub-periods. It finds that before 2022, inflation perceptions influenced expectations strongly, while realised inflation had no impact, but from 2022 onwards, the influence of perceptions on expectations was reduced, and realised inflation mattered. The findings, which are robust across different specifications and country-level analyses, align with the rational inattention theory, suggesting that attention to inflation information shifts with economic conditions

Suggested Citation

  • Gerda Kirpson, 2025. "Consumer inflation expectations before and after the 2022 inflation spike: the role of perceived and realised inflation," Bank of Estonia Working Papers wp2024-7, Bank of Estonia, revised 09 Jan 2025.
    • Handle: RePEc:eea:boewps:wp2024-7
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//https://haldus.eestipank.ee/sites/default/files/2024-12/wp7_2024.pdf
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    More about this item

    Keywords

    consumer inflation expectations; inflation perceptions; survey data; rational inattention; Consumer Expectation Survey (CES);
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • 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

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