Inflation expectations continue to rebound

Roy Morgan Research has published its Inflation Expectations survey for the month of March, which has almost recovered to pre-COVID levels but remain soft when viewed on an historical basis.

Australians now expect inflation of 3.8% annually over the next two years, the highest level since February and March last year (both 4.0%) and still 0.9% below the long-term average of 4.7% (see next chart).

Inflation expectations

Inflation expectations have almost recovered to their pre-COVID level.

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Curiously, inflation Expectations are much higher for women (4.3%) than men (3.4%), and this holds across every age group (see next chart).

Inflation expectations by gender

Women have far higher inflation expectations than men.

According to Roy Morgan CEO Michele Levine, “inflation Expectations continued their upward trajectory in March 2021, up by 0.1% points to 3.8% and are now up 0.6% points over the last seven months since reaching a low of 3.2% in August 2020… This is the most sustained trend of increasing Inflation Expectations for over a decade”.

I don’t foresee any material inflation problems given wage growth is likely to remain low reflecting abundant spare capacity across the labour market.

The sharp rebound in inflation expectations most likely reflects catch-up growth following last year’s lockdown induced slump rather than a structural increase.

Unconventional Economist

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