Inflation Expectations
Definition
Beliefs about future price changes, measured through surveys, market pricing, or models, each with limitations.
Canada
Why does the Bank of Canada watch inflation expectations?
Expectations can shape pricing and wage decisions. A business that expects its input costs to rise may raise prices sooner, while workers may seek larger wage increases. Expectations that stay close to the inflation target help stabilize those decisions.
Bank of CanadaUnited States
Why does the Fed care what people expect inflation to be?
Households and businesses make decisions partly on expected prices. For example, a company expecting persistently higher costs might raise prices preemptively. Stable longer-term expectations can help keep a temporary shock from spreading.
Federal Reserve monetary policy guide