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Working Paper
The Role of Inflation Perceptions in Consumer Inflation Expectations: Evidence from the Euro Area
Using data on euro-area household inflation forecasts from the European Commission Consumer Survey, we show that households' perceptions of recent price changes play a key role in the formation of their inflation expectations. Such a relationship remains robust when we account for specific inflation components, household characteristics, and macroeconomic conditions, even though the perceptions-expectations relationship is heterogeneous across countries. These results highlight the importance of perceptions about inflation for the conduct of monetary policy.