BIS central bankers’ speeches  3  Finally, the household finance section contains time series of expected household income growth, expected household spending growth, changes in the amount of taxes that households expect to pay, as well as perceived credit availability – both relative to one year ago and looking ahead to one year from now. As Chart 5 indicates, household income growth expectations declined slightly to 2.3 percent in May, but remained in the middle of the narrow band (2.0 – 2.6) observed over the last twelve months. On the other hand, perceptions of credit availability continued to improve slightly in May, as shown in Chart 6. For most of our charts, the website gives additional demographic detail, breaking down each time series by income, education, age, numeracy, and region of the country. Further, for our main measures (inflation, home price changes, and earnings growth) we also report the time series of forecast uncertainty. One interesting finding – consistent with our prior research – is that forecast uncertainty about inflation is significantly higher for low education, low income, low numeracy respondents. These findings can be seen in Chart 7. Summary of past research Let me now briefly describe some of the basic research we have carried out through our consumer surveys. We have focused on two broad questions to date. First, we have investigated the connection between inflation expectations and behavior in a financially incentivized investment field experiment. In this study, survey respondents were asked for their inflation expectations.
Through another field experiment embedded in our American Life Panel survey modules, we have examined how respondents update their expectations after receiving information about either past food price inflation or future inflation forecasts by professional forecasters. Before the information treatment, and again after the provision of information, respondents were asked for their inflation expectations. We also asked for respondents’ priors about the information that was provided, to see whether those who have larger perception gaps are more likely to update their expectations, and if they would do so by a larger amount. We found that respondents revise their expectations in the direction predicted by theory after receiving new information. Further, the extent of revisions is correlated with the size of their perception gaps. Finally, respondents are more receptive to the new information when the uncertainty expressed in their baseline expectations is greater. All three findings are consistent with rational, Bayesian updating of expectations. Moving beyond average effects, we also found that our information treatment leads to a significant decline in the cross-sectional dispersion of inflation expectations, and causes the 4  BIS central bankers’ speeches  distribution of inflation expectations to converge toward its center – particularly for those who had high baseline expectations and were less informed ex ante. In fact, average revised expectations were nearer to actual realized CPI inflation as a result of our intervention.