How to Measure Consumer Inflation Expectations and Uncertainty? A Comparison of Different Survey Question Types in an International Context

The course of macroeconomic processes depends on many factors. Developments in macroeconomic theory and empirical research show that consumer expectations and sentiment play a significant role in this regard. Interestingly, recent studies have confirmed that consumer inflation expectations may be more important in influencing price changes in the economy than expert expectations. Consequently, consumer inflation expectations are monitored and analyzed by central banks, which adapt their communication policies to influence consumer opinions. At the same time, central banks are engaged in developing tools for measuring inflation expectations and uncertainty. This is reflected in new consumer surveys implemented by central banks in recent years (e.g., the NY Fed Survey of Consumer Expectations, the ECB Consumer Expectations Survey). The design of the questions in these surveys drew on accumulated knowledge from psychology and survey methodology. Particular attention was paid to the research findings regarding the impact of survey question wording on respondents' declared opinions, ensuring that the questionnaire included questions that provided reliable information on consumer perceptions of inflation, their expectations, and uncertainty.

Our research project focuses on measuring consumer inflation expectations and the related uncertainty. The data used in the project will be derived from specially designed surveys, which will be conducted in Poland and expanded to other Central and Eastern European economies (the Czech Republic, Hungary, Slovakia, and Bulgaria). In each of these countries, we plan to conduct the survey on a sample of 1,500 respondents, representative in terms of gender, age, education, and size of residence. Compared to other European Union economies, the economies included in the project are characterized by greater inflation volatility and greater deviations in inflation perceptions and expectations from actual inflation. Our research project will fill a significant information gap and provide conclusions that will be useful in designing and conducting further research.

Our empirical research will be guided by four research objectives. Our primary goal is to assess consumers' understanding of the concept of inflation. To achieve this, we will include various wordings of questions regarding anticipated price changes in the survey questionnaire. Second, we use different types of survey questions to assess how consumers express the uncertainty of their expectations. Third, based on responses to various survey questions, we compare consumers' short- and medium-term inflation expectations in terms of their level and uncertainty. Fourth, we assess how consumers respond to challenges in the energy sector and anticipate changes in fuel prices in the face of geopolitical events and market dynamics, taking into account both cognitive and behavioral aspects.

In developing this new consumer survey, we propose a number of innovative elements. For example, we aim to measure both inflation perceptions and expectations not only directly but also indirectly, asking about the change in income necessary for consumers to be able to purchase the same amount of goods as in the reference period. Furthermore, we use various question types to assess the scenarios consumers consider when predicting future price changes and the probabilities they subjectively assign to these scenarios. We also assess respondents' economic knowledge and its role in shaping their opinions about price changes. Another innovative element of our research project is the comparisons between countries in Central and Eastern Europe.