European Union consumer inflation expectations in macro panels

Authors

  • Andrius Vainilavicius

DOI:

https://doi.org/10.2478/rsep-2025-0006

Keywords:

Consumer Inflation Expectations, Balance Statistics, Carlson-Parkin Method, Survey Data

Abstract

Paper investigates the role of consumer inflation expectations in macroeconomic variable dynamics within select European Union countries from 2004Q1 to 2024Q3, employing a panel vector autoregression (PVAR) model. The empirical analysis compares two approaches: balance statistics and various configurations of the Carlson-Parkin quantification method, studying variations in inferred dynamics dependent upon methodological selection. The results indicate that consumer inflation expectations modestly influence aggregate demand and inflation, consistent with intertemporal substitution effects. However, the anticipated wage-price spiral was largely absent, and the relationship between unemployment and inflation was weaker than traditional Phillips curve frameworks would predict, suggesting structural factors or unemployment rates above the natural unemployment rate. Furthermore, macroeconomic relationships found, particularly concerning consumer sentiment are dependent on methodological choices. Lastly, heterogeneity in dynamics between different countries is analysed. This heterogeneity underscores the value of country-specific analysis for understanding the transmission of inflation expectations to macroeconomic outcomes.

References

Arioli, R., Bates, C., Dieden, H. C., Duca, I., Friz, R., Gayer, C., Kenny, G., Meyler, A., and Pavlova, I. (2017). EU consumers’ quantitative inflation perceptions and expectations: an evaluation. Occasional Paper Series 186, European Central Bank.

Bachmann, R., Berg, T. O., and Sims, E. R. (2015). Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence. American Economic Journal: Economic Policy 7 (1): 1–35.

Berk, J. M. (1999). Measuring inflation expectations: a survey data approach. Applied Economics 31 (11): 1467–1480.

Carroll, C. D. (2003). Macroeconomic expectations of households and professional forecasters. Quarterly Journal of Economics, 118(1). https://doi.org/10.1162/00335530360535207

Duca, I. A., Kenny, G., and Reuter, A. (2021). Inflation Expectations, Consumption and the Lower Bound:Empirical Evidence from a Large Micro Panel. Journal of Monetary Economics, 118, 120-134,https://doi.org/10.1016/j.jmoneco.2020.03.005.

Foresells, M., and Kenny, G. (2002). The rationality of consumers’ inflation expectations: Survey-based evidence for the Euro Area. Working paper series No. 163, European Central Bank.

Huber, S. J., Minina, D., and Schmidt, T. (2023). The pass-through from inflation perceptions to inflation expectations. Discussion Papers 17/2023, Deutsche Bundesbank.

Kucerova, Z., Paksi, D., and Konarik, V. (2024). Macroeconomic fundamentals and attention: What drives european consumers’ inflation expectations?. Economic Systems, 48(1), https://doi.org/10.1016/j.ecosys.2023.101153.

Lolic, I., and Soric, P. (2017). Economic uncertainty and its impact on the Croatian economy. Public Sector Economics, 41 (4): 443–477.

Lyziak, T. (2010). Measurement of perceived and expected inflation on the basis of consumers survey data. Irving Fisher Committee on Central Bank Statistic Working Papers, 5. Basel: Bank for International Settlements.

Lyziak, T. (2013). Non-Positive Scaling Factor in Probability Quantification Methods: Deriving Consumer Inflation Perceptions and Expectations in the Whole Euro Area and Ireland. Comparative Economic Studies 55 (1): 77–98.

Millet, F. (2006). Finding the optimal method of quantifying inflation expectations on the basis of qualitative survey data. Narodowy Bank Polski.

Nickell, S. (1981). Biases in Dynamic Models with Fixed Effects. Econometrica, 49 (6):1417–1426.

Panagiotis, L., and Argyrios, A. (2023). Inflation Differentials of Euro Countries and Their Determinants. Economies, 11(10), 250, https://doi.org/10.3390/economies11100250.

Pesaran, M. H., and Weale, M. (2005). Survey Expectations. CESifo Working Paper No. 1612 Handbook of Economic Forecasting.

Roberts, J. M. (1998). Inflation expectations and the transmission of monetary policy. Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System.

Rondinelli, C., and Zizza, R. (2020). Spend today or spend tomorrow? The role of inflation expectations in consumer behaviour. Temi di discussione (Economic working papers) 1276, Bank of Italy, Economic Research and International Relations Area.

Rudd, J. (2021). Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?). Finance and Economics Discussion Series 2021-062. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2021.062.

Rutkowska, A., and Szyszko, M. (2021). Inflation expectations quantification with fuzzy control system. Soft Computing 25, 7803–7812, https://doi.org/10.1007/s00500-021-05616-5.

Sigmund, M., & Ferstl, R. (2021). Panel Vector Autoregression in R with the Package Panelvar. The Quarterly Review of Economics and Finance, 80: 693-720, https://doi.org/10.1016/j.qref.2019.01.001.

Szyszko, M., and Rutkowska, A. (2019). Inflation Expectations of European Consumers after the Crisis. Do Macro Variables Drive Expectations?. Eastern European Economics, 57(4), 271–294. https://doi.org/10.1080/00128775.2019.1610896.

Szyszko, M., Rutkowska, A., and Kliber, A. (2019). Inflation expectations after financial crisis: are consumers more forward-looking?. Economic Research-Ekonomska Istraživanja, 33(1), 1052–1072. https://doi.org/10.1080/1331677X.2019.1595083.

Verbrugge, R., and Zaman, S. (2021). Whose Inflation Expectations Best Predict Inflation?. Economic Commentary 2021-19.

Weber, M., Gorodnichenko, Y., and Coibion, O. (2023). The Expected, Perceived, and Realized Inflation of US Households Before and During the COVID19 Pandemic. IMF Economic Review 71(1), 326-368.

Downloads

Published

2025-06-30

Issue

Vol. 10 No. 1 (2025): Review of Socio-Economic Perspectives

Section

Research Articles

License

Copyright and Open Access Policy

The Review of Socio-Economic Perspectives (RSEP) is committed to the principles of open access and the widest possible dissemination of scholarly knowledge. The journal provides immediate and unrestricted access to all published content, enabling readers worldwide to freely read, download, copy, distribute, print, search, and link to the full texts of articles without financial, legal, or technical barriers.

RSEP supports the principles of the Budapest Open Access Initiative (BOAI), which advocates free and unrestricted access to peer-reviewed scholarly research.

Copyright Ownership

Authors retain the copyright of their published works.

By submitting and publishing their manuscripts in RSEP, authors grant the journal a non-exclusive right to publish, reproduce, distribute, archive, index, and preserve the work in electronic and other formats for scholarly communication purposes.

The journal does not require authors to transfer copyright ownership to the publisher. Authors remain the legal copyright holders of their work after publication.

Licensing Policy

Beginning with Volume 2025, all articles published in RSEP are distributed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (CC BY-NC 4.0).

Under the CC BY-NC 4.0 license, users are permitted to:

  • Read, download, copy, and redistribute the material in any medium or format;
  • Share the work with others;
  • Adapt, remix, transform, and build upon the material;

provided that:

  • Appropriate credit is given to the original author(s) and the journal;
  • A link to the license is provided;
  • Any changes made to the original work are clearly indicated;
  • The material is not used for commercial purposes.

The full license terms are available at:
https://creativecommons.org/licenses/by-nc/4.0/

 

Previous Licensing Policy

Articles published before Volume 2025 were distributed under the Creative Commons Attribution 4.0 International License (CC BY 4.0).

The CC BY 4.0 license permits unrestricted use, distribution, adaptation, and reproduction in any medium, including commercial use, provided that appropriate credit is given to the original author(s) and source.

Articles published under CC BY 4.0 remain subject to the licensing terms that were in effect at the time of publication and are not retroactively relicensed.

Rights Retained by Authors

Authors retain the right to:

  • Share their published articles on personal websites, institutional repositories, and academic networking platforms;
  • Reuse parts or all of their work in future publications, books, teaching materials, and presentations;
  • Deposit the published version of the article in repositories without embargo;
  • Disseminate and promote their research freely.

Rights Granted to the Publisher

Authors grant RSEP the right to:

  • Publish and disseminate the work as the original publisher;
  • Archive and preserve the article permanently;
  • Include the article in indexing, abstracting, and database services;
  • Maintain the official version of record;
  • Promote and distribute the published work through journal platforms and scholarly communication channels.

Open Access Statement

RSEP is a fully open-access journal. All articles are made freely available online immediately upon publication without subscription fees or access restrictions.

No embargo period is applied. Readers may access and use published content in accordance with the applicable Creative Commons license.

The journal believes that open access increases the global visibility, accessibility, usage, and impact of scholarly research while promoting the free exchange of scientific knowledge.

License Consistency

To ensure transparency and compliance with international indexing standards, the licensing information displayed on the journal website, article metadata, PDF files, and publishing platforms will remain consistent and accurately reflect the licensing terms applicable to each published volume.