Bulletin – December Quarter 2016 Measures of Inflation Expectations in Australia Abstract
Inflation expectations have an important influence on wage growth and price inflation. Expectations differ across agents and time and, accordingly, the Reserve Bank monitors a range of measures. This article discusses why inflation expectations are important for inflation and economic activity, the measures that exist in Australia and various issues affecting their interpretation. The financial markets that are used to calculate some measures of inflation expectations are not particularly liquid in Australia, and the financial measures also include an inflation risk premium; these issues can affect the interpretation of movements in the series.