Anchoring of inflation expectations and the role of monetary policy and cost‐push factors

Abstract This paper studies the anchoring of inflation expectations at the individual forecaster level. It proposes a novel measure of anchoring based on both point and density forecasts, and uses data from the European Central Bank Survey of Professional Forecasters to examine its co‐movement with expectations about monetary policy and key cost‐push factors. The anchoring measure is constructed for each forecaster and regressed on expectations regarding the European Central Bank policy rate, crude oil prices, the US dollar/euro exchange rate, and unit labor costs. Although the cross‐sectional mean of long‐term inflation expectations appears largely stable, substantial heterogeneity emerges during periods of heightened macroeconomic uncertainty, with some forecasters exhibiting signs of de‐anchoring. The results show that individual anchoring is systematically related to expectations about future policy rates and unit labor cost changes. In addition, these relationships have strengthened since 2020 and display asymmetries depending on whether inflation expectations lie above or below the target.