“ central banking in times of complexity ”, panel remarks at a conference on the occasion of sveriges riksbank ’ s 350th anniversary, stockholm, 25 may. 10 see forsells, m. and kenny, g. ( 2004 ), “ survey expectations, rationality and the dynamics of euro area inflation ”, journal of business cycle measurement and analysis, vol 1 ( 1 ), pp 13 – 42. 11 more precisely, the balance statistic is calculated as a weighted average of the percentage of those replying that consumer prices will “ increase more rapidly ” or “ increase at the same rate ” minus a weighted average of the percentage of those replying that they “ stay about the same ” or will “ fall ”, with the more extreme answers ( i. e. “ increase more rapidly ” and “ fall ” ) being assigned double weighting relative to the intermediate answers. 12 see also coibion, o. and gorodnichenko, y. ( 2015 ), “ is the phillips curve alive and well after all? inflation expectations and the missing disinflation ”, american economic journal : macroeconomics, vol. 7 ( 1 ), pp. 197 – 232. the basic idea goes back to the prospect - theory developed by kahneman and tversky ( 1979 ), which stated that the perception of economic situations depends on their framing. in other words, price changes are perceived during the act of purchase and the price change of a good is perceived more strongly the more often a good is bought. see kahneman, d. and tversky, a. ( 1979 ), “ prospect theory : an analysis of decision under risk ”, econometrica, vol. 47 ( 2 ), pp. 263 – 91 13 see also forsells and kenny ( 2004, op. cit. ). 14 see duca, i., kenny, g. and reuter, a. ( 2017 ), “ inflation expectation, consumption and the lower bound : micro evidence from a large euro area survey ”, ecb working paper no 2196 ; d ’ acunto, f., hoang, d. and weber, m. ( 2016 ), “ the effect of unconventional fiscal policy on consumption expenditure, nber working paper no 22563 ; and ichiue, h. and nishiguchi, s. ( 2015 ). inflation expectations and consumer spending at the zero bound : micro evidence, economic

maintained by the european commission, households believed that annual euro area inflation between 2004 and 2018 was close to 9 %, when in fact it was 1. 6 %. 6 similar gaps have been found in the united states and elsewhere. 7 moreover, many households are not aware of central banks ’ inflation aims. in the united states, for example, a recent survey showed that only a quarter of surveyed households knew of the federal reserve ’ s 2 % inflation aim. 8 this clearly suggests that central banks need to do much more to bring the monetary policy discussion to the broader public, and thereby improve their accountability. 9 yet, there is convincing evidence that, although households may not be able to correctly identify the current level of inflation, they have a fairly good understanding of changes in the trend of current inflation, and that these changes are likely to inform their expectations about future inflation. 10 you can see this on my next slide. what you can see here is actual hicp inflation together with qualitative consumer inflation expectations for the following year, computed as a balance statistic which is the difference between the share of respondents who expect prices to rise and the share of those who expect 3 / 13 bis central bankers'speeches prices to fall, or to stay about the same. 11 the correlation with actual inflation is remarkable. much of this correlation is typically driven by price developments in some of the goods and services that consumers purchase more frequently. to put it simply, if goods are purchased more regularly, price changes are more likely to be noticed. 12 you can see this on the left - hand side of my next slide, which relates household inflation expectations to annual inflation in energy and unprocessed food – products for which most consumers typically have a good understanding of price developments. clearly, the correlation is much closer than when these two product categories are excluded, as you can see on the righthand side. what is more, data on consumers ’ inflation expectations indeed suggest that developments in market - based inflation expectations are often representative of trends in the wider economy. you can see this on my next slide. 4 / 13 bis central bankers'speeches changes in the direction of household inflation expectations are typically very similar to those of professional forecasters, which are shown on the left - hand side, and financial market participants, which are shown on the right - hand side, at least for horizons of up to one or two years. in other words, most individuals – whether financial investors, teachers or nurses – use simple rules