The Determinants of Consumers’ Inflation Expectations: Evidence from the US and Canada

Expectations about future inflation are of central importance for public policy and monetary authorities. The inflation expectations of consumers influence their economic choices related to wage negotiations, consumption and savings and, in turn, influence firms’ pricing decisions and aggregate price changes. Monitoring and analyzing consumer inflation expectations is a key aspect of monetary policy practice.

This paper examines two current surveys—the Federal Reserve Bank of New York’s Survey of Consumer Expectations and the Bank of Canada’s Canadian Survey of Consumer Expectations—to analyze how consumers form and revise their expectations about future inflation in the US and Canada. We compare results from the two surveys to study if differences in the monetary policy frameworks of both countries or in the survey designs influence findings.

We find that Canadian consumers rely more on professional forecasts and the history of actual inflation when forming their expectations, while US consumers rely more on their own lagged expectations. Our results also reveal a substantial socio-economic difference in how respondents weight inflation experience and public information to form their expectations in each country.