Open Mouth Operations: Does Communication of the RBA’s Inflation Target Affect Consumers’ Beliefs about Inflation?

by Gianni La Cava
The ability of the Reserve Bank of Australia (RBA) to effectively communicate its goals is vital in the fight against inflation. To work out if communications about the RBA’s inflation target affect consumers’ beliefs about inflation, a randomised experiment was run with 3000 Australians in an online survey. Key findings:
  • People that were randomly told about the RBA’s inflation target of 2-3% were much less likely to believe that inflation was well above the target than people that were not told.
  • About 44 per cent of the people that were told about the RBA target believed current inflation was a lot above 2-3% compared to 51 per cent of those not told.
  • About 29 per cent of those told about the RBA target expected inflation in a year’s time to be a lot above 2-3% compared to 33 per cent of those not told.
  • Some people were more affected by the communication than others, including respondents that identified as female, had lower educational attainment or an `average’ understanding of inflation.
This research is preliminary but does suggest that communications about the RBA’s goals can anchor consumers’ beliefs and help to manage inflation, particularly communications targeted at less financially engaged consumers.

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