Commentary: How we expect prices to rise matters when it comes to inflation

Effective communication of their future stance on inflation control measures is an essential tool in the repertoire for most central banks, in addition to credible policy decisions. Together, this will ease transitory factors, like increased freight cost and potential of price gouging, and let market supply and demand factors determine prices – not unhinged perceptions of future inflation.

Thus, anchoring inflation expectations means consumers can feel assured and refrain from basing purchasing decisions on fear or speculation.

Aurobindo Ghosh is Assistant Professor of Finance Education and Founding Principal Investigator, Singapore Index of Inflation Expectations (SInDEx) Project, Lee Kong Chian School of Business, Singapore Management University (SMU).

Khyati Chauhan is Economic Research Assistant, International Monetary Fund – Singapore Training Institute, and former research assistant for the SInDEx Project, SMU.

Muskan Bagrodia is a Masters candidate for Financial Economics and research assistant for the SInDEx Project, SMU.

These views are those of the co-authors. They do not represent the views and should not be attributed to their employers, including IMF and its Executive Board and management. These opinions are academic of nature and cannot be construed as financial advice.