Households’ and businesses’ inflation expectations

Central Bank of Iceland

People’s expectations of future developments in goods and services prices have a strong impact on how inflation develops, partly because expectations about price developments affect both workers’ wage demands and firms’ decisions on how to price their goods and services. For this reason, the Central Bank closely monitors households’ and businesses’ expectations about inflation. It is important that inflation expectations (particularly long-term expectations) be consistent with the Bank’s inflation target. This anchoring of expectations at the target is one of monetary policy’s most important contributions to economic stability. The main measures of inflation expectations are the expectations of households, businesses, market agents, and the bond market, the last of which is reflected in the breakeven inflation rate. Household and corporate expectations are determined by quarterly Gallup surveys. From now on, the results of these inflation expectations surveys will be published on the Central Bank website when they are available. The results of the Central Bank’s quarterly market expectations survey will also be published when they are available, as they have been to date.