Last week, the National Bank of Ukraine hosted another in a series of open research seminars where Mr Fabio Rumler, a representative from the Research Department at  the Oesterreichische Nationalbank,  presented the findings of his research  entitled: “Inflation Literacy and Inflation Expectations”.

This topic has become especially relevant to the central banks as an understanding by households and businesses of the inflation process and of the key goals and of the central bank is an important prerequisite for the effectiveness of monetary policy. Most available studies investigate only the role of sociodemographic factors (income, age, gender, etc) in the formation inflation expectations. In contrast to the existing empirical studies, the research presented at the seminar analyzes the importance of financial literacy of households and businesses, i.e. the paper investigates how the knowledge of the key drivers of inflation influences actual inflation expectations.

The researchers use data from a survey conducted among 2,000 Austrian households to construct a summary indicator of “inflation literacy” that includes a list of questions enabling them to measure the knowledge about inflation of households. Based on this summary indicator, the researchers investigate the impact of respondents’ financial literacy on the accuracy of their short-term and long-term inflation expectations.

The findings of the research suggest that Austrian households with relatively higher levels of inflation literacy tend to have more realistic inflation expectations, while deviations of individual inflation expectations from the actual outcome are much lower for consumers with higher levels of inflation literacy. However, the results suggest that respondents with higher levels of inflation literacy are less certain about their inflation expectations than people with less inflation literacy. This result can be attributed to the fact that respondents with higher inflation literacy tend to take a more cautious approach to making forecasts for the country's economic growth.

Therefore, a higher level of inflation literacy plays a key role in the formation of adequate inflation expectations, thus underlying the need for measures to raise the level of financial literacy levels among the population. In order to implement inflation targeting efficiently, the NBU pays great attention to keeping the public informed about its monetary policy decisions and explaining the reasoning behind its decisions, publishes its core inflation targets, justifications of its monetary policy decisions, as well as analytical and research papers, and holds open research seminars and conferences to discuss relevant issues of Ukraine’s economic development.

The video of the seminar is available at: https://www.youtube.com/watch?v=Rta2rH16VcU

We invite potential contributors to participate in the upcoming seminars and present the findings of their research studies.  To this end, please send your submissions (presentation materials and/or an article, CV, with an indication of a suitable date for the seminar to take place) to the Research Division of the Monetary Policy and Economic Analysis   Department for consideration via e-mail to: [email protected].