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Survey measures of expected inflation and the inflation process

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  • Bharat Trehan

Abstract

This paper uses data from surveys of expected inflation to learn how the expectations formation processes of households and professionals have changed following a change in the inflation process in the early part of this decade. Households do not appear to have recognized the change in the process, and are placing substantially more weight than appears warranted on recent inflation data when forming expectations about inflation over the next year. Professional forecasters do appear to have changed how they predict inflation in recent years, in a way that appears consistent, at first, with the finding that the ‘core’ inflation process has not changed as much as the ‘headline’ inflation process has. But the professionals appear to be placing too much weight on lagged core inflation data, and over recent sample periods professional forecasts of headline CPI inflation are noticeably worse than the alternatives. Some other evidence is consistent with the hypothesis that they are now focusing on the core CPI.

Suggested Citation

  • Bharat Trehan, 2009. "Survey measures of expected inflation and the inflation process," Working Paper Series 2009-10, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2009-10
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    Cited by:

    1. Rodolfo Arioli & Colm Bates & Heinz Dieden & Ioana Duca & Roberta Friz & Christian Gayer & Geoff Kenny & Aidan Meyler & Iskra Pavlova, 2016. "EU Consumers’ Quantitative Inflation Perceptions and Expectations: An Evaluation," European Economy - Discussion Papers 2015 - 038, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. repec:hur:ijaraf:v:7:y:2017:i:3:p:38-47 is not listed on IDEAS
    3. Magdalena Grothe & Aidan Meyler, 2018. "Inflation Forecasts: Are Market-Based and Survey-Based Measures Informative?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(1), pages 171-188, January.
    4. Benjamin Beckers & Konstantin A. Kholodilin & Dirk Ulbricht, 2017. "Reading between the Lines: Using Media to Improve German Inflation Forecasts," Discussion Papers of DIW Berlin 1665, DIW Berlin, German Institute for Economic Research.
    5. repec:rjr:romjef:v::y:2018:i:1:p:42-62 is not listed on IDEAS
    6. Andrea Fracasso & Rocco Probo, 2017. "When did inflation expectations in the Euro area de-anchor?," Applied Economics Letters, Taylor & Francis Journals, vol. 24(20), pages 1481-1485, November.
    7. Piotr Białowolski, 2011. "Forecasting inflation with consumer survey data – application of multi-group confirmatory factor analysis to elimination of the general sentiment factor," NBP Working Papers 100, Narodowy Bank Polski, Economic Research Department.
    8. Tomasz Łyziak, 2012. "Inflation expectations in Poland," NBP Working Papers 115, Narodowy Bank Polski, Economic Research Department.
    9. Rochelle M. Edge & Refet S. Gurkaynak, 2010. "How Useful Are Estimated DSGE Model Forecasts for Central Bankers?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 209-259.

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    Keywords

    Inflation (Finance);

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