Shortly before the second lockdown in October 2020, firms in Germany expected an inflation rate of 1.5 percent over the next 12 months. For the past 12 months, they likewise estimated an inflation rate of 1.5 percent, a Bundesbank survey shows. “This suggests that enterprises’ inflation expectations were firmly anchored, despite the economic slump,” the Bundesbank writes in its most recent Monthly Report. These insights are based on an online survey of more than 12,000 firms that the Bundesbank conducted in October and November 2020.

Firms’ estimates more accurate overall

As compared to households, who were also asked about their inflation expectations, the Bundesbank shows that firms tend to expect a smaller increase in the rate of inflation. In addition, their estimates were more accurate overall than those of households. For instance, the inflation rate for the past 12 months as estimated by enterprises was closer to the actually realised rate. The survey also reveals that firms’ expectations about the future inflation rate were closer to professional forecasters’ predictions.

Households, which were surveyed in September and October 2020, said that they expected an average inflation rate of 2.4 percent and estimated inflation over the past 12 months at 2.7 percent. As recently reported by the Federal Statistical Office, consumer prices in Germany rose by 1.7 percent year-on-year in March.

Sociodemographic reasons key to different estimates

The Bundesbank’s researchers believe that one reason for these differences lies in the sociodemographic characteristics of the persons surveyed within firms. They explain that these respondents represent a specific cross-section of the overall population, which was surveyed in the household survey. An analysis of the household survey shows that respondents with a higher level of education and with a higher income expect a lower inflation rate. In the survey of firms, 90% of the respondents stated that they work in management. It could consequently be assumed that respondents potentially had an above average income and an above average level of education. In addition, it might be assumed that households generally pay less attention to developments in inflation than the group questioned in the survey of firms. “If this is the case, the fact that the panel on firms was largely answered by people with a higher income and level of education than the average member of the public may explain the differences revealed between households and firms,” the economists conclude.

To date four survey waves with more than 30,000 firms

As part of the Online Panel Firms, a total of more than 30,000 firms in Germany have, to date, been questioned in four survey waves, with roughly 10,000 taking part several times. The topics of the surveys were inflation expectations and, above all, firms’ assessment of the economic situation. The objective of the Online Panel Firms is “to better depict the current situation of enterprises and their assessments and expectations in the current economic policy environment”, the Monthly Report states. Going forward, the survey commissioned by the Bundesbank is to take place monthly and its results are to be published regularly on the Bundesbank’s website.