The divergence in inflation expectations in the eurozone during the pandemic might be explained by how firms and households factor in confidence, according to new research from the Central Bank of Ireland.

In Inflation expectations of euro area consumers and firms, Conor Parle and Zivile Zekaite note confidence in the economy is “strongly associated” with inflation expectations. But this works very differently for firms and households, they find.

“Consumers’ confidence tends to move negatively