How Heterogeneous Are the Inflation Expectations?

This paper investigates the heterogeneity of inflation expectations among households, firms, and professionals across 14 economies. Using Bayesian model averaging and panel data regressions, we identify key determinants of inflation expectations, assess their stability over time, and evaluate their persistence. Our findings reveal that households and firms rely heavily on past expectations and year-on-year changes in economic variables, whereas professionals are more responsive to monetary policy indicators. The inflation news index emerges as a crucial determinant, especially during high-inflation periods, highlighting the role of media in expectation formation. We find that inflation expectations became more backward-looking during the inflationary period 2022. Additionally, while CPI inflation significantly influences firms and professionals, exchange rates and oil prices appear insignificant.