https://doi.org/10.52903/wp2025343
FORMATION, HETEROGENEITY AND THEORY CONSISTENCY OF INFLATION EXPECTATIONS IN THE EURO AREA
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.
JEL-classifications: D84, E31
Keywords: Expectations, Perceptions, Inflation, Phillips Curve, Consumer Survey
Acknowledgements: We would like to than the editor and the reviewers for their very helpful comments. The article expresses the views of the authors and not those of the Bank of Greece and PwC. We remain solely responsible for any errors and omissions.
Correspondence:
Athanasios Tagkalakis
Economic Analysis and Research Department
Bank of Greece
E. Venizelos 21, 102 50, Athens, Greece
Tel. no. +30 2103202442
email: atagkalakis@bankofgreece.gr