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An analysis published on the Central Bank of the Republic of Türkiye’s (CBRT) blog, CBRT Blog, said household inflation expectations in Türkiye, as in many countries, remain structurally above current inflation and the expectations of other economic actors.
The study, titled Household Inflation Expectations and Perceived Inflation, said expectations are shaped by perceived inflation, key spending items in household budgets and central bank communication.
It noted that expectations play a major role in inflation dynamics by influencing consumption, savings, portfolio choices and pricing behavior.
Based on survey data from the past decade, the analysis said households’ 12-month-ahead inflation expectations have generally stayed well above the current inflation rate, even during periods when inflation was in single digits.
While expectations in the real sector move more closely with inflation, market participants tend to form expectations below headline inflation in line with disinflation forecasts.
Market participants were also found to react least to short-term volatility in headline inflation.
The analysis said households have the weakest forecasting accuracy among the three groups, with expectations averaging about 10 percentage points above actual inflation in lower-inflation years and diverging further during periods of high and volatile inflation.
The report said differences in inflation expectations among households and other actors are also observed globally.
In both developed and developing countries, household expectations often remain significantly above actual inflation and professional forecasts, sometimes clustering around levels such as 5% or 10%.
According to the analysis, perceived inflation explains much of this divergence, with perceived inflation and expectations moving closely together.
In Türkiye, food and energy prices play a major role in shaping perceived inflation, alongside rent, which has remained above headline inflation for an extended period.
The study stressed that frequent and essential spending items such as food, energy and rent strongly influence perceived inflation. When price increases in these areas outpace headline inflation, household expectations tend to rise further.
It added that the limited predictive power of household expectations highlights the importance of effective communication.
The analysis noted that awareness of central bank policies is linked to inflation expectations and that television, radio and social media are key information sources in Türkiye.
The report concluded that with the continuation of tight monetary policy and falling inflation, household expectations are expected to improve gradually, provided communication with all segments of the economy remains effective.
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