Direct surveys of household expectations have become central to how central banks interpret economic shocks and set monetary policy, according to remarks by Boris Vujčić of the European Central Bank. Households do not form expectations the way professional forecasters do, with attention that is selective, incomplete information and widely dispersed beliefs shaped by income, housing and personal experience, research shows.
Salient prices, particularly food and fuel costs, disproportionately shape how households perceive inflation and form expectations, according to research cited by Vujčić. Gender gaps in inflation expectations partly reflect differences in exposure to shopping-related price signals, the evidence indicates. Harmonised surveys with a panel component, such as the ECB's Consumer Expectations Survey, track these beliefs over time and how they connect to spending and borrowing decisions.
Household survey data help central banks interpret shocks by revealing how people understand them, whether they expect them to be temporary, and how those beliefs affect spending and saving choices. Recent ECB Consumer Expectations Survey data shows that geopolitical risk can significantly worsen household sentiment and spending intentions in the euro area. Such evidence becomes particularly important when geopolitical shocks affect energy prices and the cost of living.
Traditional macroeconomic models often assumed expectations were rational and fully informed, but evidence over the past two decades has shown the limits of those assumptions, Vujčić said. Advances in internet and mobile technology have made it feasible to collect high-quality, population-representative survey data more quickly than was previously possible. The ECB and the Bank for International Settlements now use such surveys to measure expectations directly rather than infer them from economic outcomes alone.