GLOBAL - Inflation expectations are only influenced by current events when it comes to short and medium-term expectations, with the long-term outlook rarely being influenced by current events, a study by the Bank of International Settlements has found.
Examining the effect the frequency of questionnaires has on inflation expectations, the study by Gabriele Galati, Peter Heemeijer and Richhild Moessner - of the Dutch pension regulator De Nederlandsche Bank, the ABN Amro pension fund and BIS, respectively - identified closer agreement on the long-term development of inflation among respondents than in the medium and short term.
The authors said the long-term outlook - in this survey seen as inflation 10 years from survey time in 2019 - was largely determined by the European Central Bank's pronouncements.
"One interpretation is that long-term expectations are driven by focal points - such as the ECB's definition of price stability - while people form their short and medium-term expectations based more on time-varying information," the report said.
It further found that disagreements on the outlook for 2010 gradually disappeared, as those surveyed slowly gained access to inflation data for the year, while accepting that respondents were more likely to change their short and medium-term outlook from week to week, while the 10-year prediction was likely to be significantly more stable.
It found that the average percentage of changes from week to week was 38.5% for short-term predictions.
That figure fell marginally to 37% for the medium-term outlook - examining the period 24 months in the future - while predictions for a decade from now were only changed by an average of 23.5% week by week.
However, there were significant differences in findings between the three groups surveyed, namely staff from regulator DNB, academics and students.
While staff at the Dutch regulator were "significantly influenced" in their long-term outlook by short-term predictions, this was not the case with the remaining two groups.
Despite these findings, the authors warned that data was not conclusive and that evidence of this so-called anchoring of expectations was "ambiguous".