Inflation expectations of Brazilian consumers: an analysis based on the FGV survey

ABSTRACT

An accurate assessment of inflation expectations is crucial for the management of monetary policies. However, expectations are not directly observed and are hence normally inferred either from the interest rate structure or from surveys of professional forecasters. Alternatively, a direct measure may be obtained from consumer surveys. The aim of this paper is to study the formation of inflation expectations in Brazil, using a novel dataset based on the FGV/IBRE consumer survey. Basing our model on the rational inattention hypothesis, we find that individual heterogeneity plays a very significant role in shaping individual expectations; also, Brazilians adjust expectations to current inflation and to a fixed reference value, while professional forecasts do not play a very relevant role.