Firm‐Level Expectations and Macroeconomic Conditions: Underpinnings and Disagreement

ABSTRACT There is abundant evidence that financial analysts' inflation expectations differ in economically important ways from those of nonfinancial specialists. As a result, there is an increasing demand for firm‐level data to more accurately capture the views of price setters. The unusually rich firm‐level survey data from South Africa allow us to explore some of the ways in which the expectations of firms differ from those of other groups surveyed. We focus specifically on forecast disagreement, which can offer insights into the level of uncertainty reflected in the data and the degree to which expectations are influenced by the policy regime in place. We find that the divergence in inflation forecasts among respondents is partly explained by differences in how respondents believe the broader macroeconomy is evolving. The effect of aggregating the data in different ways is also considered. When we construct a new measure of macroeconomic disagreement that combines all the variables being forecast, we are able to see that forecasters responded sharply in early 2020 as the COVID‐19 pandemic emerged.