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Consumer Inflation Expectations and Household Weights

Author

Listed:
  • Constantin Bürgi

    (St. Mary’s College of Maryland)

Abstract
There are substantial differences between general inflation expectations as reported in consumer surveys and CPI inflation. This paper proposes that some of this difference can be explained by the fact that households are not weighted the same in the two measures. In the CPI, households are weighted according to their expenditure, while they have equal weights in the consumer survey. To estimate the impact of the weighting difference, it is assumed that households predict the inflation of their own consumption basket. New empirical evidence is provided that supports this assumption as consumers do not predict CPI inflation and they predict a basket of goods. The estimated difference in mean expectations explained by the difference in weights is 0.7 percentage points or 20-25% of the difference for the US.

Suggested Citation

  • Constantin Bürgi, 2020. "Consumer Inflation Expectations and Household Weights," Working Papers 2020-002, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
    • Handle: RePEc:gwc:wpaper:2020-002
    as

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    File URL: https://www2.gwu.edu/~forcpgm/2020-002.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    CPI; CPI Expectations; Consumer In ation Expectations; Democratic CPI; Plutocratic CPI;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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