Household expectations about inflation and other economic conditions shape spending, saving and borrowing decisions and are critical to understanding how monetary policy works, central bank officials said. Unlike professional forecasters, most households do not continuously process broad macroeconomic data but rely instead on selective attention and incomplete information, creating wide dispersions in beliefs across population groups.
Those belief gaps reflect differences in income, wealth, housing situation, financial literacy and trust in institutions, according to research cited by monetary policy officials. Salient prices, particularly food and fuel costs, disproportionately influence how households perceive inflation. Gender gaps in inflation expectations partly reflect differences in information environments and exposure to shopping-related price signals, the research noted.
Survey data on consumer expectations have become increasingly valuable for policymaking, particularly in interpreting economic shocks and understanding how persistent households expect disruptions to be. Recent evidence shows that geopolitical risk can significantly worsen household sentiment and spending intentions. Surveys allow central banks to observe how households perceive uncertainty directly rather than infer perceptions later from aggregate economic outcomes.
Higher perceived macroeconomic uncertainty can persistently reduce demand, according to evidence cited by officials. Central banks have used household expectations data to prepare baseline projections and alternative scenarios, with surveys helping calibrate how households themselves perceive uncertainty and whether they expect shocks to be temporary or persistent.
