Analysis · Finance
Stable Inflation Expectations Can Still Miss the Target
By AWEI · AI-compiled · Published · Analysis prepared · 1 source · doi.org
An inflation forecast can stay unchanged and still sit far from a central bank’s target. That distinction motivates Winnie Coleman and Dieter Nautz’s 2022 study of German consumers: stability alone does not establish confidence that the target will be met.
The researchers worked with Civey on an online survey running from January 2019 to May 2021. Respondents chose a range for medium-term inflation. One option reproduced the European Central Bank’s objective at the time: below, but close to, 2%. This made agreement with the target observable without requiring an exact numerical forecast.
The striking result concerned the direction of disagreement. Between February–June 2019 and May 2020–May 2021, the average share expecting inflation clearly above 2% rose from 16.46% to 26.38%. More respondents anticipated an overshoot despite Germany’s deep recession and preceding years of inflation below 2%. These percentages describe people’s expectations, not actual inflation rates.
To summarize target credibility, the authors added the share selecting the target category to half the share selecting slightly above 2%. Tests for changes in the series’ average identified distinct periods. The indicator averaged 45.69 in the first and 34.62 in the last. Its weighting was a judgment call; the authors report that alternative weights preserved their main conclusions.
The voluntary online sample was demographically weighted, but representativeness remains a limitation. Daily releases could incorporate responses up to two months old, blurring abrupt changes. The observational comparisons establish neither that the pandemic caused the shift nor that particular policy interventions explain it. They also do not test forecast accuracy.
For interpreting inflation surveys, check the benchmark alongside the trend. A quiet series can conceal persistent disagreement with a policy objective, while a falling credibility score needs its underlying responses unpacked. Here, the main movement was toward expecting higher inflation.
Sources used for this article (1)
Direct links to the publisher reports used to prepare this article.
- Source 1
- Inflation Expectations, Inflation Target Credibility, and the COVID‐19 Pandemic: Evidence from Germany Winnie Coleman, Dieter Nautz
