This study analyzes the characteristics of inflation expectations of the general public and how these expectations are formed, in comparison with those of an expert group, and also examines the relationship between the general public’s inflation expectations and surveys.
According to the results of the analysis, inflation expectations among the general public in Korea have a stronger correlation with past inflation rates and the persistence of expectations is longer than those of the expert group. This is because among the general public group, a larger share form their expectations from a backward-looking perspective than among the expert group. The inflation expectations of the two groups show different determinants: the general public formed their inflation expectations based chiefly on past inflation rates, without using information variables related with future price movements, while experts use relevant information appropriately.
Since the general public’s inflation expectations are long-lasting, the monetary authorities need to make continuous efforts to ease public expectations when prices are on an upward trend. Moreover, during periods of wild price fluctuations, expectations are less likely to be firmly anchored and attention therefore needs to be paid to stabilizing them.
Meanwhile, since these revealed characteristics of the general public’s inflation expectations ― long-lasting and dependent upon past information in forming expectations ― are partly attributable to the survey methodology, it is needed to improve future surveys targeting the general public.