Are inflation expectations still anchored?

The Reserve Bank surveys households and businesses for their inflation expectations. As you’d expect, expectations have shifted recently with the rise in the CPI.

But households and businesses have parted ways in the long term outlook. Households think inflation five years from now will still be at 5%. That is up 2% from a year ago.

Businesses disagree. They think inflation five years from now will be 2.3%, and 2.1% in ten years. Businesses have shifted their view by only 0.3% and 0.1% respectively in the last 12 months for those 5- and 10-year timeframes. This is good.

Households Inflation Expectations M13
Dec 2020Dec 2021
1 year ahead – median2.2%4.0%+1.8%
1 year ahead – mean2.8%4.5%+1.7%
5 years ahead – median3.0%5.0%+2.0%
5 years ahead – mean4.3%5.6%+1.3%
Businesses Annual CPI Growth Expectations M14
Dec 2020Dec 2021
1 year ahead1.73%4.4%+2.7%
2 years ahead1.89%3.27%+1.4%
5 years ahead2.03%2.3%+0.3%
10 years ahead2.01%2.12%+0.1%