Abstract

This memo examines the role of inflation expectations in Norwegian price setting, with particular focus on developments following the inflation surge from 2022 to 2023. Using quarterly survey data from Norges Bank’s Expectations Survey, together with macroeconomic control variables, we estimate an expectation-augmented Phillips-curve model. As firms are price setters, the analysis places particular emphasis on inflation expectations reported by business leaders. The analysis shows that business leaders’ inflation expectations have a positive and statistically significant relationship with domestic inflation, also when using different measures of inflation. We further assess the forecasting performance of expectations from different respondent groups and find that expectations from business leaders and professional economists improve short-term inflation forecasts, especially after 2020, when inflation and expectation volatility increased. The findings indicate that the informational value gained from expectations is regime-dependent and becomes particularly significant during periods of high inflation or heightened uncertainty. Overall, the findings highlight the relevance of survey-based expectations as a complement to traditional macroeconomic indicators in analysing and forecasting inflation in Norway.