ECB's Vujčić on Household Expectations

ECB Vice-President Boris Vujčić stated that household expectations about inflation and the economy are now a core input for monetary policy analysis. He made these remarks in a speech at the European School of Management and Technology in Berlin on 1 September 2026.

Vujčić explained that traditional macroeconomic data does not fully capture what households believe or how those beliefs influence their financial decisions. He argued that expectations about inflation, income, and interest rates directly affect spending, saving, and borrowing, thereby shaping how monetary policy transmits through the economy.

Recent Advances in Understanding Expectations

Households do not form expectations like professional forecasters, Vujčić noted. Their attention is selective, their information is incomplete, and their beliefs are widely dispersed. This dispersion reflects real differences in income, wealth, housing status, financial literacy, lived experience, and trust in institutions.

Research co-authored by Professor Michael Weber has shown that salient prices, especially for food and fuel, can disproportionately shape inflation perceptions. Related evidence helps explain a persistent gender gap in inflation expectations, partly through differences in information environments and exposure to shopping-related price signals.

Vujčić emphasized the value of harmonised, cross-country surveys like the ECB’s Consumer Expectations Survey. These tools allow policymakers to track beliefs over time and connect them to actual behaviour.

How Expectations Research Informs Policy Analysis

Vujčić outlined four key areas where expectations research has directly informed recent policy analysis during a period of inflation shocks and geopolitical stress.

First, household survey data improves the interpretation of economic shocks. While aggregate data shows what happens to prices, surveys reveal how people interpret shocks and how persistent they expect them to be. For instance, evidence from the Consumer Expectations Survey shows geopolitical risk can significantly worsen household sentiment and spending intentions in the euro area.

Second, uncertainty itself matters for demand. Evidence shows higher perceived macroeconomic uncertainty can persistently reduce household spending, helping policymakers distinguish between temporary caution and broader demand weakness.

Third, the transmission of monetary policy through household balance sheets varies significantly. Analysis based on the Consumer Expectations Survey shows how mortgage repricing feeds into consumption with long and uneven lags across different household groups and countries.

Fourth, there are important differences in how well inflation expectations are anchored. Vujčić stated that household expectations are generally less well anchored than professional forecasts. However, their longer-term expectations tend to be more centred around the ECB's 2% inflation target and are less sensitive to surprises than shorter-term expectations.

Communication, Trust, and Credibility

Vujčić argued that central bank communication is part of policy transmission itself, as it can influence household inflation expectations. He cited research indicating that, for broad audiences, communication about the inflation target and objective can be more effective than communication about technical instruments.

In the euro area, evidence indicates that clear communication about the inflation target, paired with simple policy explanations, can improve perceived central bank credibility. This is particularly important among groups with lower financial literacy. Vujčić concluded that better-anchored expectations can reduce the output cost of bringing inflation back to target.