Expectations of what inflation may be in the months and years ahead will affect current behaviour for businesses setting their prices or workers seeking wage rises, and so influence actual inflation in future. Surveys of inflation expectations can cast light on what people are expecting to happen. The research results indicate that using surveyed inflation expectations in forecasting models can improve forecasts of inflation. Forecasts for headline inflation including inflation expectations are significantly more accurate than similar forecasts without survey inflation expectations. The note considers how much survey ... (full story)

New Zealand’s central bank has determined that households’ view of future inflation is more informative than the expectations of businesses and economists when it comes to predicting headline inflation. Of its suite of measures, the survey of one-year household inflation expectations “demonstrates the strongest predictive ability,” the Reserve Bank said in an analytical note published Wednesday in Wellington. The bank used statistical models to reach its conclusion after sampling a mix of inflation surveys. Most analysts track the inflation component in the RBNZ’s quarterly survey of business expectations as a ... (full story)