Assessing inflation expectations anchoring for heterogeneous agents: analysts, businesses and trade unions

Forecasts of agents who are actively involved in the setting of prices and wages are less readily available than those of professional analysts but may be more relevant for understanding inflation dynamics. Here we compare inflation expectations anchoring between analysts, businesses and trade unions for one country for which comparable forecasts are available for almost two decades: South Africa. Forecasts are modelled as monotonically diverging from an estimated long-run anchor point, or 'implicit anchor', towards actual inflation as the forecast horizon shortens. We find that the estimated inflation anchors of analysts lie within the 3-6 percent inflation target range of the central bank. However, those for businesses and trade unions, which our evidence suggests may be the most relevant for driving the inflation process, have remained above the top end of the official target range. Our results point to challenges for central banks seeking to gain credibility with agents whose decisions directly influence inflation.