This paper analyses formation of consumer opinions on perceived and expected inflation in the Euro area and selected transition economies in 1985 - 2008. Selected social and demographic groups accounted for their own patterns of price perception and forecasting. These patterns repeated in all observed countries. Consumer's sense of his/her familiarity and competence regarding the price development were main factors in evaluation of inflation rates by knowledgeable individuals and proved useful, when estimating actual price growth. Familiarity and competence, however, misled when estimating future price growth.
The aim of the article is to present the impact of monetary policy on chosen variables characterising the real and nominal side of the economy. The author first describes the idea of the natural rate of interest, which can be defined as the rate of real interest that stabilises inflation. This approach is extremely important for central banks seeking to implement a direct inflation targeting strategy. Using a money market equilibrium model and term structure of interest rates, the author establishes that if the real interest rate effect occurring in the short term is stronger than the effect of increased inflation expectations then the increase in money supply will reduce the level of the short-term nominal interest rate. However, in the long term the nominal interest rate will increase due to inflation expectations.