Rising household inflation expectations: what are the communication challenges for central banks?

Key takeaways

• Household inflation expectations have risen alongside higher inflation. These expectations matter for central banks since they affect consumption decisions and wage demands, shaping the public debate on inflation.
• Households are more influenced by the prices of frequently purchased items. This partly explains why they typically perceive current inflation to be higher than official inflation and why their expectations of future inflation exceed those of professional forecasters.
• Households may not fully appreciate the link between inflation and monetary policy. Continuous and direct engagement by central banks using simple and relatable messages can make communication more effective.