The Formation of Consumer Inflationary Expectations in Australia*

This paper analyzes the quantitative price expectations of consumers as obtained from consumer surveys. Price expectations are considered as functions of (i) past rates of inflation (ii) other economic variables, and (iii) consumer sentiment variables. The dominant influence on expectations is the most recent change in the consumer price index. Wage-indexation decisions and changes in the money supply also exert a significant influence on mean expectations. The variability of price expectations across consumers is proportional to the mean level of expectations.