MNI BRIEF: Price Expectations Help Stabilise Econ: ECB Paper

Higher inflation expectations have a positive influence on consumers' readiness to spend, a paper published by the European Central Bank Tuesday argues, with stronger stabilising effects observed when nominal interest rates are constrained at the lower bound. In a low-interest environment, consumers are more likely to spend if they expect inflation to be higher in future, authors Ioana Duca-Radu, Geoff Kenny and Andreas Reuter found, drawing on new evidence from from a monthly survey of over 25,000 individual consumers across the euro area.

"This finding – which is observed with striking consistency across demographic and economic groups and individual euro area countries – supports the view that consumers' inflation expectations can play a role in macroeconomic stabilisation," they concluded.

However, they add, "our study has not addressed key questions related to the transmission of central bank policies and policy communication to consumers' inflation expectations."

'Can consumers' inflation expectations help stabilise the economy?,' ECB Research Bulletin, No. 79.