Households' Perceived Inflation and CPI Inflation: the Case of Japan

Yusuke Takahashi and Yoichiro Tamanyu
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Yusuke Takahashi: Bank of Japan

No 22-E-1, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This study analyzes the mechanism of how households' inflation perceptions are formed in Japan and investigates the backdrop of why perceived inflation is higher than CPI inflation. Our cross-sectional analysis using micro-data shows that a variety of factors affect households' inflation perceptions, including their sociodemographic characteristics, which are likely to affect their consumption patterns, their sentiment, and their awareness of the Bank of Japan's "price stability target." We further show that such inflation perceptions, as well as sentiment and awareness of the "price stability target," influence households' tolerance towards price rises. We then analyze how changes in the price of individual goods and services influence perceived inflation using aggregate data and find that a large share of the fluctuations in perceived inflation can be explained by changes in food product and petroleum product prices. In addition, we show that house prices, which are not included in the CPI in Japan, also explain these fluctuations. These results imply that households have in mind a different basket of goods and services from the CPI when they form their inflation perceptions.

Keywords: Inflation; Inflation perception; Consumer price index; Tolerance towards price rises (search for similar items in EconPapers)
JEL-codes: D12 E31 E58 (search for similar items in EconPapers)
Date: 2022-03-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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