The world’s central bankers may be attempting the impossible: to get into the psyche of business executives, labour unions and ordinary households in real ‌time to understand how they are navigating their finances through yet another energy shock. Policymakers are contemplating whether to jack ​up interest rates to combat rising inflation. But they ‌will only pull the trigger if they think a surge in energy costs induced by the Iran war will filter ‌into other prices, lifting inflation expectations across the entire economy. The problem ‌is that measuring such expectations is notoriously difficult. Central banks have ‌a trove of surveys, gauges and indicators at their disposal but all of them have blind spots if not outright faults. Since the Covid-19 pandemic, they have developed new tools to fill gaps in data about behaviour. But measuring expectations remains more an art than an exact science. That could raise the bar for rate hikes as policymakers are wary of gut-feeling decisions and usually prefer to wait for more evidence to narrow the risk of a policy error. BEHAVIOURS HAVE CHANGED SINCE 2022 INFLATION SPIKEPolicy-makers at the Bank of Canada acknowledged that global uncertainty meant they “would need to rely on judgment more heavily than usual” to plot the path of economy, according to minutes of its March 18 meeting at which it kept rates on hold. Others describe the effort involved in the process. “I try hard to get into the thoughts of ​price-setters and how they are seeing it — trying to calibrate their confidence in pricing power,” Richmond Federal Reserve Bank President Tom Barkin told Reuters. “The ‘hike’ case would be around inflation expectations starting to finally move,” he said. “I don’t have a sense that they’ve broken out at this point.” One complication is that behaviours change. In 2022, consumers ‌and firms had little experience with rapid inflation, making price- and wage-setting a rather ​rigid exercise. “But now people have lived through a painful episode of inflation, and this may mean that inflation expectations are more ​fragile, and so they could be more sensitive to such an energy price shock,” European Central Bank board member Isabel Schnabel said in a university lecture earlier this week. For companies, changing their selling prices was a cumbersome process before the pandemic and so they limited adjustments, often to once a year. This became untenable and the frequency of changes sky-rocketed, Schnabel argued. This makes the frequency and not just the magnitude of such changes a good indicator that expectations are shifting. Traditionally, central banks relied on surveys and market indicators to assess expectations. But surveys are not done frequently enough to capture rapid changes and their time horizon is often out of sync with that of policymakers. Market indicators of expected inflation are also imperfect because they include the extra return, or risk premium, investors demand for holding a particular financial instrument. This changes with market sentiment, blurring shifts in actual price expectations. The stakes are high: investors now expect the ECB to raise rates two or three ‌times this year, the Bank of England twice, and have ‌given up on any Fed rate cuts in 2026. CENTRAL BANKS INNOVATE TO COVER KNOWLEDGE GAPSTo compensate for such information gaps, central banks have developed an array of new tools. They track expected wage changes, including via major pay deals announced by unions, which may be a signal to others negotiating their own pay. They survey firms directly and speak to executives to gauge expected behaviour, and they take on board ever-larger numbers of external surveys with forward-looking indicators. Central bank staff track the frequency of price changes, correct existing surveys to fill data gaps and have revised their own projection models to address shortcomings that missed 2022’s inflation surge caused by the pandemic and Ukraine war. Also key to their judgment call is trying to understand how this inflation shock differs from four years ago. The consensus on this seems firm: conditions are fundamentally different. Interest rates are already ​higher, government purses are tighter, there is growing slack in the labour market and - unlike during the pandemic, when they were unable to spend - households are not sitting on piles of cash. “We’re coming into this situation with the gradual disinflation that we were having, the labour market is softening (and) growth is a little bit below potential,” Bank of England Governor Andrew Bailey told Reuters. “And one of the consistent messages we get from businesses is, for most sectors of the economy, a real lack of pricing power.” Using their enhanced insight, central banks are for now confident that longer-term inflation expectations are holding firm around their targets. But the longer the war drags on, the longer energy prices will stay high — and as consumers see everyday costs like fuelling their cars rise, the more likely it is that inflation expectations will move upwards. When exactly this happens will not be clear, ‌leaving policymakers to judge for themselves. “Economics ​itself is not an exact science,” ECB policymaker Primoz Dolenc said. “It’s of course based on analytics but by definition there is also a perception and judgment element.”

The biggest winners from this year’s World Cup are poised to be those able to rent out their properties, especially in the tri-state area.Bobby Roufaeal, who manages more than a dozen short-term rentals in New Jersey, said a luxury rental in the state could bring in $240,000 between June 11 and July 19 when the tournament runs. He said he’s tripling rates for his units in anticipation of fan inflow for the games and fielding calls from homeowners looking to capitalise on demand.“They’re like, listen, I’ll figure it out. I’ll go stay with my relatives for the month or for a few weeks just to be able to capitalise on this revenue,” said Roufaeal, founder of Settled In Property Management.Already listings show a surge in prices. One six-bedroom Airbnb Inc property in Princeton, New Jersey, is offered at roughly $6,000 a night during the World Cup, about 140% higher than its price a year ago. That’s despite being more than an hour’s drive from the games being played at MetLife Stadium.The fervour is reshaping the lodging market in World Cup cities across the US, which are expecting millions of visitors throughout the course of the tournament. Matches are also being held in Mexico and Canada.“Big events like the FIFA World Cup create meaningful economic opportunities for local hosts, many of whom use the extra income to offset the rising cost of living,” Airbnb said in an emailed statement. “At the same time, guests still have a wide range of listing options to choose from — as of late February, roughly 80% of available listings across host cities were priced under $500 a night on average.”For those renting out their homes, it can be a lucrative prospect — especially as Airbnb has offered as much as $750 in cash for first-timers to incentive new listings. For travellers, the cost of attendance adds up as prices surge for tickets, hotel rooms and flights. The tourism boom is expected to lift hotel rates in the host cities by an average of 300% around opening matches, the New York Times has reported. Those expenses are causing Mehdi Salem, the founder of French soccer fan association Les Baroudeurs du Sport, to find ways to save money as he organises accommodations for 80 of his members to see France play at MetLife.He’s squeezing eight people in a room designed to sleep four and booked hotels in Manhattan more than a year before the games when prices were lower. Now, he is looking at spaces in New York City’s outer boroughs like the Bronx and Queens, as well as Airbnbs in less-travelled New Jersey neighbourhoods.“Some prices are totally ridiculous,” Salem said.Montclair, New Jersey, a well-off suburb, has seen a 169% increase in short-term rental occupancy during the group stage compared to the same dates last year, according to data as of March 26 from analytics platform AirDNA, which tracks rental demand, rates, and occupancy across host cities. Nearby towns of Clifton, Newark, Paterson and Jersey City, have also seen surges, the data shows.Jamie Lane, chief economist at AirDNA, said that as the games grow closer — prices are poised to increase.“When bookings start, people typically aren’t booking the properties that are priced really high,” he said. “Other properties that are more reasonably priced do get booked and then we see the delta between the available rates and the booked rates begin to merge.”