Central banks attach great importance to inflation expectations. Households’ and firms’ expectations about the future path of inflation affect wage and price setting as well as consumption and investment decisions. Financial market participants’ expectations are relevant because they influence financial prices and financing conditions. Inflation expectations “anchored” around the inflation target are seen as a pre-condition for maintaining price stability and credibility of the central bank. Starting in 2021, after a long period of low inflation, the euro area has been experiencing above-target inflation. How will this affect economic agents’ perceptions about future inflation? Five papers were prepared by the ECON Committee’s Monetary Expert Panel, explaining the role of inflation expectations in monetary policy and challenges of measuring expectations, as well as policy implications and risks of unanchoring of inflation expectations due to the COVID-19 crisis. This publication is provided by Policy Department A for the Committee on Economic and Monetary Affairs (ECON), ahead of the Monetary Dialogue with ECB President on 7 February 2022.
Source : © European Union, 2022 - EP