De Nederlandsche Bank publishes analysis on how household inflation expectations can drive spending, wage demands and inflation

De Nederlandsche Bank (DNB) published a background article explaining how households’ expectations about future price changes can influence real economic behaviour and, in turn, actual inflation. The piece describes how expectations of higher prices can shift consumption and saving decisions, raise near-term demand, and contribute to inflation when supply does not keep pace, while firms may also incorporate expected cost increases into their pricing. The article also links inflation expectations to wage negotiations, noting that expected inflation can influence pay demands even where wage growth is often tied to past inflation. It highlights why euro area central banks aim to keep inflation stable around a 2% target and monitor expectations through surveys of households, businesses and other market participants, warning that overly high expectations can create a feedback loop that makes inflation harder to control through interest rate policy. DNB summarises research indicating that households form expectations largely from salient price changes in day-to-day purchases such as groceries, alongside media coverage, social conversations and past experiences, and notes that trust in central banks and economic knowledge tend to support more stable expectations, underpinning DNB’s emphasis on clear communication and financial education. This is the third article in a three-part DNB series on how inflation affects households differently, following earlier articles on differences in spending habits, wages, assets and debt.