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Consumers’ Perception of Inflation in Inflationary and Deflationary Environment

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  • Ewa Stanisławska

    (Narodowy Bank Polski (National Bank of Poland))

Abstract

The paper employs survey data on quantitative inflation perceptions to investigate the formation of consumers’ opinions about current price developments. Firstly, we compare Polish consumers’ estimates of price changes with the consumer price index (CPI) and find that consumers react more quickly to inflation increases than decreases, and that they ignore small moves in inflation. Moreover, the previously stable relation between inflation perception and the CPI inflation was distorted during the deflationary period, leading to a smaller perception bias. Secondly, we relax the assumption that consumers perceive price changes in the CPI terms and show that consumers over-weight clothing and footwear prices and under-weight transport prices relative to the expenditure shares of these items. Prices of food and beverages, as well as prices related to housing, water, gas, electricity, etc. have similar impact on inflation perception as on the CPI inflation. Thirdly, selective attention of consumers to price changes and asymmetric reaction to increases and falls in prices, captured by alternative price aggregates, do not explain inflation perception during deflation.

Suggested Citation

  • Ewa Stanisławska, 2019. "Consumers’ Perception of Inflation in Inflationary and Deflationary Environment," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 15(1), pages 41-71, April.
  • Handle: RePEc:spr:jbuscr:v:15:y:2019:i:1:d:10.1007_s41549-019-00036-9
    DOI: 10.1007/s41549-019-00036-9
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    Cited by:

    1. Stanisławska, Ewa & Paloviita, Maritta, 2021. "Medium- vs. short-term consumer inflation expectations : evidence from a new euro area survey," Research Discussion Papers 10/2021, Bank of Finland.
    2. Stanisławska, Ewa & Paloviita, Maritta & Łyziak, Tomasz, 2019. "Assessing reliability of aggregated inflation views in the European Commission consumer survey," Research Discussion Papers 10/2019, Bank of Finland.

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    More about this item

    Keywords

    Consumer survey data; Consumers’ inflation perception; Quantitative inflation perception; Deflation;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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