Forecasting household-level inflation in Greece

The aim of this study is to develop a forecasting framework for household-level inflation in Greece using domestic, global and energy-related predictors for the period 2009-2022. We show that significant forecasts gains are obtained when models incorporate global conditions and energy prices, relative to our benchmark model, the AR(1). More importantly, though, we find that although the global economic activity, global supply chain pressure and geopolitical risk are important predictors for all households, there are other predictors which demonstrate a household-specific forecast performance. Even more, we show that the energy factors are more important predictors for the low-income households. Overall, these results demonstrate (i) that aggregate inflation forecasts are not representative of the Greek households and (ii) the importance of household-specific inflation forecasting, which could be used as an early warning system that identifies the factors that could drive inflation inequality across the different households.