Blog post

Inflation and expectations formation

Publishing date
02 March 2012

Euro area inflation was lower than estimated in January, according to data released on Wednesday, February 29, by Eurostat. The statistical office reported a fall of 0.8 percent in consumer prices against December figures. The numbers reflect expectations about a slowdown in price growth.

In a BIS working paper, Galati, Heemeijer and Moessner present new insights from a survey on euro area inflation expectations. They find that long-term expectations are in line with the ECB’s definition of price stability and that the Greek debt crisis had an impact on short- and medium-term inflation expectations, but only a modest effect on long-term outlooks. They also reveal that the survey participants tended to change their beliefs often. This frequency decreased the longer the time horizon considered was, with the expectations of central bank staff being the least volatile.

The results are based on weekly data collected over the July 2009- July 2010 time frame, covering expectations on short-, medium- and long-term inflation and roughly equal samples of staff from the Dutch Central Bank (DNB), academics and students. The work follows previous survey studies, such as the European Commission Consumers Survey, the ECB’s Survey of Professional Forecasters (SPF) and the Euro Zone Barometer. These surveys deal with one-year ahead expectations, with the exception of the SPF, which also offers medium-term expectations. Consensus Economics provides information on long-term horizons.

A graphic comparison of the paper’s findings (DNB) and two of the other available surveys is presented below:


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