Directional Accuracy of Urban Consumers’ Inflation Forecasts in China

Young Bin Ahn

Emerging Markets Finance and Trade, 2018, vol. 54, issue 6, 1414-1424

Abstract: We evaluate the directional accuracy of inflation forecasts based on the survey data of urban savings account holders in China. By using a new market-timing test, we show that the urban consumers’ expectations of inflation are not a useful predictor of the overall consumer price index (CPI) and the urban household CPI (U-CPI) in China. However, after our in-depth analysis using the inflation rate of each category in the U-CPI basket, we find that the consumers’ forecasts are useful in predicting the movement of the residence component in the U-CPI basket since the third quarter of 2009.

Date: 2018
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DOI: 10.1080/1540496X.2017.1297933

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