Research Discussion Paper – RDP 2016-02 Disagreement about Inflation Expectations

Average and median measures of inflation expectations can disguise substantial disagreement in expectations. Disagreement in expectations has important implications for anchoring of inflation expectations and central bank credibility. We use individual response data from five survey measures of inflation expectations to document five features of disagreement about inflation expectations in Australia: (1) there has been a decline in disagreement since the introduction of inflation targeting, except among consumers; (2) disagreement responds little to most macroeconomic news surprises; (3) disagreement among consumers is much larger than among professional forecasters; (4) disagreement and the mean level of inflation expectations co-move for consumers but not professional forecasters; (5) there appear to be persistent differences in consumer inflation expectations across different demographic groups. For professional forecasters, the reduction in the overall level of disagreement and unresponsiveness of disagreement to most macroeconomic news surprises is consistent with well-anchored inflation expectations.