Consumer Inflation Expectations and Household Weights

Constantin Bürgi

No 2020-002, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

Abstract: There are substantial differences between general inflation expectations as reported in consumer surveys and CPI inflation. This paper proposes that some of this difference can be explained by the fact that households are not weighted the same in the two measures. In the CPI, households are weighted according to their expenditure, while they have equal weights in the consumer survey. To estimate the impact of the weighting difference, it is assumed that households predict the inflation of their own consumption basket. New empirical evidence is provided that supports this assumption as consumers do not predict CPI inflation and they predict a basket of goods. The estimated difference in mean expectations explained by the difference in weights is 0.7 percentage points or 20-25% of the difference for the US.

Keywords: CPI; CPI Expectations; Consumer In ation Expectations; Democratic CPI; Plutocratic CPI (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2020-02
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:gwc:wpaper:2020-002

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