Inflation expectations are a pivotal yet often overlooked factor in shaping a country’s economic outlook. They essentially refer to the rate at which consumers, businesses, investors and policymakers anticipate rising prices.
Various factors can shape the expectations, including inflation trends, economic conditions, central bank policies and broader economic forecasts.
When consumers expect prices to rise, they tend to spend more in the present rather than delay purchases, boosting demand and driving up inflation. Conversely, if they anticipate falling prices, they might delay spending, reducing demand and potentially leading to lower inflation or deflation.
Similarly, the expectations also influence wage negotiations, which workers and employers factor in to future inflation.
If high inflation is expected, workers demand higher wages to maintain their purchasing power, which, in turn, raises production costs for…
