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Nexus between Inflation, Inflation Perceptions and Expectations

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  • Nam, Minho
  • Go, Minji

Abstract

We uncover a nexus between actual inflation, inflation perceptions and expectations in Korea through analyzing micro as well as aggregate data from the Consumer Survey. We document two novel findings. First, households' subjective perceptions of inflation exert more impact on expectation formation than actual inflation. Second, inflation perceptions are broadly in line with the trajectory of the inflation trend. This is attributable to the fact that changes in actual inflation have been generated mainly by the consumption items whose price changes are perceived more sensitively as those items are frequently bought or have a larger share in household expenditures. Conducting a cross-country comparison, we find that information rigidity in expectation formation process and the nexus between perceptions and expectations of inflation prove to be stronger in Korea. Additionally, we reconfirm the existing finding that the scope of information utilized for forming inflation expectations is fairly circumscribed.

Suggested Citation

  • Nam, Minho & Go, Minji, 2018. "Nexus between Inflation, Inflation Perceptions and Expectations," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 40(3), pages 45-68.
    • Handle: RePEc:zbw:kdijep:200826
    DOI: 10.23895/kdijep.2018.40.3.45
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    Cited by:

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    2. Yingying Xu & Zhixin Liu & Jingjing Chen & Sultan Salem, 2024. "How official TV news affect public inflation expectations? Evidence from the Chinese national broadcaster China Central Television," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 819-831, January.
    3. Dash, Pradyumna & Rohit, Abhishek Kumar & Devaguptapu, Adviti, 2020. "Assessing the (de-)anchoring of households’ long-term inflation expectations in the US," Journal of Macroeconomics, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Inflation Expectations; Inflation Perceptions; Expectation Formation; Information Rigidity; Monetary Policy;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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