Jaqueson K. Galimberti

Household surveys on inflation expectations are vital tools for central banks. They help officials understand how people expect prices to change, and whether those expectations remain stable. Our research, using data from the Reserve Bank of New Zealand, shows that many of these surveys may not accurately represent what the population of households truly believes. A large share of people simply skip the question about expected inflation, and those missing responses are not random.

Measures of inflation expectations are of paramount importance to monetary policy. Inflation expectations are key determinants of prices through the forward-looking behavior of households and firms while also underpinning whether beliefs are anchored to the central bank's inflation target. Surveys are the most common instrument used to measure inflation expectations.

From the Asian financial crisis to the global financial crisis, governments and central banks are working together to shore up economic growth and employment, while keeping inflation and government debt in check. Fiscal stimulus during crises years came in the form of spending and subsidies, which ballooned debt; monetary stimulus arrived through low interest rates and liquidity injections, which flooded economies with cheap credit.