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

Author

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  • Yusuke Takahashi

    (Bank of Japan)

  • Yoichiro Tamanyu

    (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.

Suggested Citation

  • Yusuke Takahashi & Yoichiro Tamanyu, 2022. "Households' Perceived Inflation and CPI Inflation: the Case of Japan," Bank of Japan Working Paper Series 22-E-1, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp22e01
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    References listed on IDEAS

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    1. Takatoshi Sasaki & Hiroki Yamamoto & Jouchi Nakajima, 2023. "Nonlinear Input Cost Pass-through to Consumer Prices: A Threshold Approach," Bank of Japan Working Paper Series 23-E-9, Bank of Japan.

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    More about this item

    Keywords

    Inflation; Inflation perception; Consumer price index; Tolerance towards price rises;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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