The divergence between core and headline inflation: Implications for consumers’ inflation expectations

Arora, Vipin; Gomis‐Porqueras, Pedro; Shi, Shuping

doi:10.1016/j.jmacro.2013.07.006

Cited by 26 publications

(22 citation statements)

References 13 publications

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“…Further, using monthly data of Ethiopia over 10 years, Durevall et al (2013) estimated models of inflation to clarify the important factors contributing to CPI inflation and its major components of food prices, non-food prices, ISSN 2329-9150 2016 and cereal prices. Furthermore, using the testing method suggested by Homm and Breitung (2012) and the US data from 1982 to 2010, Arora et al (2013) identified the periods when the headline price index in terms of personal consumption expenditures (PCEs) largely fluctuates relative to the core PCE. …”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic Relations of Consumer Prices: A Case Study of Recent Effects on the Japanese Headline CPI

Tsuji¹

2016

jsss

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This study attempts to empirically examine the relations between the headline consumer price index (CPI) and several other CPIs in Japan by applying the vector error correction models (VECMs). Our investigations derive the following interesting findings. First, we reveal that as to our four combinations of the CPIs tested in this paper, 1) all variable coefficients in the cointegrating equations are statistically significant in our VECM models and the statistical significance is very strong. Thus, we understand that our four bivariate combinations of the CPIs tested in this paper are all strongly cointegrated and the VECM approach is very effective to capture the time-series effects of the categorized CPIs on the Japanese headline CPI. Further, we also find that 2) as far as judging by the results of our impulse response analyses, for the period from May 2011 to June 2015, the headline CPI for Japan is weakly or little affected by the CPI of energy and the CPI of food for Japan. We further clarify that 3) according to the results of our impulse response analyses, the Japanese headline CPI is positively affected by both the CPI of utilities for Japan and the CPI of transportation and communication expenses for Japan.

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Section: Literature Reviewmentioning

confidence: 99%

Dynamic Relations of Consumer Prices: A Case Study of Recent Effects on the Japanese Headline CPI

Tsuji¹

2016

jsss

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“…Accordingly, persistent divergence between headline and core inflation deserves close attention since anchoring inflation expectations can be difficult for policymakers when headline inflation diverges from core inflation repeatedly, not in a transitory manner. Such a case is explored for the US economy over the period 1982-2010 by Arora et al (2013). They initially identify episodes where headline inflation deviates from core inflation 1 in an explosive manner in the US economy and then question the implications for consumer inflation expectations.…”

Section: Introductionmentioning

confidence: 99%

“…Our study has been motivated by the findings put forward by Arora et al (2013) for the US economy. Quantifying how consumers' inflation expectations change when food and energy prices have deviated explosively relative to the prices of other goods comprises the main objective of the current study.…”

Section: Introductionmentioning

confidence: 99%

“…In order to address our ultimate concern of getting insights about the impacts of explosive behaviour of food and energy prices on inflation expectations, we followed the framework proposed by Arora et al (2013). In compliance with the inflation expectations specification proposed by Mankiw et al (2004), we include unemployment rate and interest rate as macroeconomic variables to get a notion of how inflation expectations may respond.…”

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How Consumers' Inflation Expectations Respond to Explosive Periods of Food and Energy Prices: Evidence for European Union Countries

Ganioğlu¹

2020

Prague Economic Papers

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In this study, using the recent recursive unit root tests proposed by Phillips et al. (2015), we identify and date-stamp periods where food and energy prices deviate explosively relative to other prices in the economy and analyse the implications in terms of anchoring inflation expectations. During the period from January 2003 to July 2018, we have detected the existence of such periods for 17 out of 27 EU countries. Identifying these explosive periods is particularly important since evidence reveals that consumers change, i.e., revise their inflation expectations during periods when headline consumer prices deviate explosively from core prices. Furthermore, it is realized that consumers take macroeconomic variables into account as well as past inflation when forming inflation expectations in both normal and explosive periods. On the other hand, there are particular differences among groups of countries while adjusting their inflation expectations during explosive phases. A common feature for all the countries is that during explosive periods, consumers change and update their inflation expectations on the basis of information coming from the interest rate. More specifically, consumers in all the countries perceive a higher current interest rate as an indication of higher future inflation, leading to higher inflation expectations in explosive periods. A particularly important policy implication of these findings is that periods of explosive deviations in headline prices from core prices should be monitored closely while designing policies to anchor inflation expectations.

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“…Since the 1970s the academic literature has sought to incorporate expectation in Macro models. More recent models started to take into account that agents may not be fully informed about all economic variables (Carroll 2003;Curtin 2007;Arora et al 2013). Being able to anchor agents and mainly the consumers' expectations is a tool that no government can disregard.…”

Section: Introductionmentioning

confidence: 99%

Consumer's inflation expectations in Brazil

2017

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This paper investigates what are the main components of consumer's inflation expectations. We combine the FGV's Consumer Survey with the indices of inflation (IPCA and government regulated prices), professional forecasts disclosed in the Focus report, and media data which we crawl from one of the biggest and most important Brazilian newspapers, Folha de São Paulo, to determine what factors are responsible for and improve consumer's forecast accuracy. We found gender, age and city of residence as major elements when analyzing micro-data. Aggregate data shows the past inflation as an important trigger in the formation of consumers' expectations and professional forecasts as negligible. Moreover, the media plays a significant role, accounting not only for the expectations' formation but for a better understanding of actual inflation as well. KeywordsInflation expectations. Media. Brazil. Consumers. ResumoO artigo investiga as principais variáveis que influenciam a formação das expectativas de inflação dos consumidores brasileiros. Combinamos sondagem do consumidor, divulgada pela FGV, índices de inflação (IPCA e preços regulados pelo governo), previsões do mercado para o IPCA publicadas no Boletim Focus e informações sobre a circulação de notícias de inflação em um dos maiores e mais importantes jornais nacionais, Folha de São Paulo, a fim de determinar fatores relevantes para previsão da inflação dos consumidores e melhoria da acurácia da mesma. A análise dos microdados da sondagem do consumidor identificou como principais variáveis o gênero, a idade e a cidade de residência. Dados agregados mostram a inflação passada como fator importante na formação das expectativas dos consumidores enquanto a previsão do ♦ Agradecimento ao Fundo de Pesquisa Aplicada da FGV-RJ.

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The divergence between core and headline inflation: Implications for consumers’ inflation expectations

Cited by 26 publications

References 13 publications

Dynamic Relations of Consumer Prices: A Case Study of Recent Effects on the Japanese Headline CPI

Dynamic Relations of Consumer Prices: A Case Study of Recent Effects on the Japanese Headline CPI

How Consumers' Inflation Expectations Respond to Explosive Periods of Food and Energy Prices: Evidence for European Union Countries

Consumer's inflation expectations in Brazil

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