RDP 2016-02: Disagreement about Inflation Expectations 3. Data Sources

We use data from five separate surveys of inflation expectations, comprising different types of agents: the Consensus Economics survey and RBA survey, both of market economists; the Sydney University Workplace Research Centre survey of trade union officials (union survey); the Melbourne Institute Survey of Consumer Inflationary Expectations (consumer survey); and The Age Economic Survey, which comprises a mix of market economists, unions, and academics.

While the Melbourne Institute survey measure asks consumers about the ‘prices of things you buy’, the other measures are based on surveys of expectations of headline CPI inflation. The union survey is an exception, in which respondents were principally asked about their expectations for headline inflation, although at some points in time expectations for underlying inflation were recorded. The surveys also differ in their frequency, sample periods, and sample size, as reported in Table 2.

There are some limitations to the data. Ideally, we would examine the behaviour of disagreement at a range of horizons, with long-horizon disagreement potentially most informative about the degree of anchoring of inflation expectations. However, disaggregated survey data on long-horizon expectations are largely unavailable for Australia. A key exception is the union survey, for which inflation expectations are available at short- and medium-term horizons, corresponding to year-ahead inflation and inflation over the next 5 to 10 years.^[2] Notably, the level of disagreement is similar and co-moves for both horizons (discussed in Section 4.1). This gives us greater confidence in the relevance of our findings regarding the anchoring of inflation expectations.

Although we make use of individual response data to measure disagreement about inflation expectations, our data form repeated cross-sections rather than panel data. While we would ideally make use of panel data to isolate persistent versus transitory differences in expectations between survey respondents, this is not possible for most survey measures. The consumer survey measure comprises a random sample of consumers each month, while the Consensus Economics, RBA, and union surveys record the survey participant's employer rather than the name of the survey respondent; turnover of respondents within surveyed organisations means we cannot track individuals through time. An exception is The Age survey, which does record the names of surveyed economists. Some individuals have participated in The Age survey for an extended period of time, but many have not. Because relatively few individuals can be tracked for an extended period of time, we do not make use of the panel aspect of these data.

Except for the Consensus Economics survey, respondents are asked to report inflation expectations for the year ahead. The Consensus Economics survey asks for inflation over calendar years, including the current year, and so the monthly series will include forecasts at horizons of between 6 and 17 months. Thus, disagreement about inflation expectations is mechanically lower in later months of each year because there are fewer unknown inflation outcomes. In our regressions, we include time dummy variables to remove this predictable variation in disagreement.

Footnote

From the beginning of the sample until February 1997, the medium-term question referred to inflation ‘through the rest of the 1990s’ and between May 1997 and August 1998, the medium-term question referred to inflation ‘through to 2000’. After August 1998, the question refers to inflation over the next 5 to 10 years. [2]