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Effects of Inflation and Wage Expectations on Consumer Spending: Evidence from Micro Data

Author

Listed:
  • Yuichiro Ito

    (Bank of Japan)

  • Sohei Kaihatsu

    (Bank of Japan)

Abstract

This paper employs a unique micro dataset in Japan to monitor inflation and wage expectations and investigate their effects on consumer spending. Based on our analysis, wage expectations increased moderately among wider range of employees after the introduction of Quantitative and Qualitative Monetary Easing (QQE). Real wage expectations also recovered recently, although it declined soon after the introduction of QQE, reflecting larger increases in inflation expectations compared with wage expectations. Increases in inflation expectations produced the positive effect on consumer spending on the whole since the positive effect of declines in real interest rates was larger than the negative effect of declines in real wage expectations. Wage expectations were generally influenced by wage perception and business performance outlook. This suggests that improvement in wage expectations needs to associate higher expectations about business performance outlook and realization of wage increases.

Suggested Citation

  • Yuichiro Ito & Sohei Kaihatsu, 2016. "Effects of Inflation and Wage Expectations on Consumer Spending: Evidence from Micro Data," Bank of Japan Working Paper Series 16-E-7, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp16e07
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    References listed on IDEAS

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    5. Hibiki Ichiue & Shusaku Nishiguchi, 2015. "Inflation Expectations And Consumer Spending At The Zero Bound: Micro Evidence," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1086-1107, April.
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    7. Simon M. Potter, 2011. "Improving survey measures of inflation expectations," Speech 49, Federal Reserve Bank of New York.
    8. Rüdiger Bachmann & Tim O. Berg & Eric R. Sims, 2015. "Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 1-35, February.
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    Cited by:

    1. Concetta Rondinelli & Roberta Zizza, 2020. "Spend today or spend tomorrow? The role of inflation expectations in consumer behaviour," Temi di discussione (Economic working papers) 1276, Bank of Italy, Economic Research and International Relations Area.
    2. Das, Abhiman & Lahiri, Kajal & Zhao, Yongchen, 2019. "Inflation expectations in India: Learning from household tendency surveys," International Journal of Forecasting, Elsevier, vol. 35(3), pages 980-993.
    3. Sohei Kaihatsu & Shogo Nakano & Hiroki Yamamoto, 2024. "Macroeconomic Impact of Shifts in Long-term Inflation Expectations," Bank of Japan Working Paper Series 24-E-18, Bank of Japan.
    4. Sohei Kaihatsu & Noriyuki Shiraki, 2016. "Firms' Inflation Expectations and Wage-setting Behaviors," Bank of Japan Working Paper Series 16-E-10, Bank of Japan.

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    More about this item

    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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