Consumer Inflation Research Articles

Inflation Expectations and the Price at the Pump

Consumer inflation expectations are positively correlated with gas prices. The optimal monetary policy response to energy price fluctuations depends on whether inflation expectations are excessively sensitive to gas prices, perhaps due to their high volatility and salience. I use multi-horizon microdata to study the dynamics of consumers' gas price and inflation expectations. Consumers do not "overweight" gas prices in their perception of inflation, relative to the expenditure share of gas. They believe gas price inflation is negatively autocorrelated and feeds into core inflation moderately. The impact of gas prices on inflation expectations fades quickly with forecast horizon.

Pass-through of crude oil prices at different stages in Turkey

This paper examines the degree of oil price pass-through to domestic prices at different stages of supply chain in Turkey. Our results, based on vector autoregressive models, point out that the pass-through to domestic motor fuel prices is considerably fast as expected and just one third of a change in crude oil prices is reflected to the motor fuel prices due to the high share of taxes on retail prices. On the other hand, it is shown that impact of oil prices on transport services takes a longer time compared to other domestic prices. Over the 2004–2014 period, estimates suggest that a 10% permanent change in the international crude oil prices is associated with a 0.42 percentage points change in consumer inflation at the end of one year. The final accumulated pass-through to consumer inflation reaches 0.50 percentage points. Moreover, the pass-through to producer prices is nearly twice as much as that to consumer prices. Findings also provide some evidence for a strengthening in oil price pass-through to consumer inflation over time, which might reflect the growing natural gas intensity of the economy.

Do Inflation Expectations Matter in a Stylised New Keynesian Model? The Case of Poland

This paper estimates different versions of a stylised New Keynesian model of the Polish economy, in which alternative measures of inflation expectations are used. They include: model-based (rational) expectations as well as survey measures of inflation expectations formed by consumers, enterprises and financial sector analysts. After estimating the models we verify to what extent the use of different measures of inflation expectations affects the assessment of the monetary transmission mechanism, the exchange rate pass-through and the sacrifice ratio. Simulation results show different responses in all the analysed areas. For example, the maximum reaction of CPI inflation to the interest rate impulse is almost twice bigger if the direct measures of financial sector analysts are used instead of model-consistent expectations. Also the model with survey-based measures of producer inflation expectations displays stronger response of inflation to monetary policy impulse than the model, in which rational expectations are assumed. Estimates of the exchange rate pass-through from the models with survey-based expectations are very similar to each other, but stronger than in the model with rational expectations. The sacrifice ratio seems similar in the case of all versions of the New Keynesian model except its version with consumer inflation expectations that shows significantly larger output loss resulting from a permanent reduction of the inflation target than the other models. Differences in the assessment how monetary factors affect macroeconomic variables, particularly inflation, pose the question which model should be treated as the most adequate. To answer this question we run in-sample simulations, calculating inflation forecasting errors of all the models under consideration. We conclude that the model that assumes rational inflation expectations displays the lowest forecasting accuracy, while the model using inflation expectations of enterprises is the best-performing model. It suggests that the assumption of rational inflation expectations does not match the actual data well. Inflation expectations of Polish enterprises seem the most relevant from the macroeconomic point of view – more relevant than inflation expectations of consumers and financial sector analysts.

Money, Inflation and the Arab Spring in Bahrain

1. Introduction This paper investigates money and inflation in the Kingdom of Bahrain with a focus on the period of the Arab Spring (AS), 2011-13, to determine the effects of social unrest on general and relative prices. The amount of research on the economies of the Middle East and the Arab world has expanded lately, especially in light of the AS. In addition to our own work on the effect of the AS on employment and output in Bahrain (Miller & Epstein, 2015), researchers have recently investigated the effects of unrest in the Middle East in general on stocks (e.g. Abdelbaki, 2013; Chau, Deesomak & Wung, 2014; Bouri, 2013), banking (e.g. Jackowicz & Kowalewski, 2013; Kim, 2013; Thalassinos et al., 2013), unemployment (Campante & Chor, 2012), and output (Khandelwal & Roitman, 2013). The issues of money and monetary policy in Bahrain have been addressed by Jusof, Al Wosabi & Majid (2009), Darrat and Al-Sowaidi (2009), Espinoza and Prasad (2012), Hojjat & Barnhorst (2013). Narrowing the focus to the connection between unrest and prices, Dube & Vargas (2013) is representative of analyzes that consider the unrest provoked by price movements. In this paper we reverse the analysis and consider what changes in general or relative price might have occurred as a result of the unrest. To do so we have organized the paper as follows. We begin by investigating the measurement and co-movement of two inflation indicators--the GDP Deflator and the Consumer Price Index (CPI)--over the period 1990-2011, followed by an analysis of the specific movements in the two indexes to determine what nonmonetary factors may play a role in the movement of general prices both over time and in short periods of uncertainty in Bahrain. Third, we look at disaggregated monthly CPI data just before and then during the AS to determine the effect on prices in various consumer sectors of Bahrain, if any, of the onset of social upheaval. The last part sets out our conclusions. 2. The Nature and Movement of Inflation Indicators over Time To understand the movement of prices during the Arab Spring we must first determine exactly what the two dominant inflation indexes are capturing. Once done we can then track the movement of the two before and during the AS to discover any causal connection between prices and social unrest. In 2007 Tahir and Samad applied Vector Autoregression to five macroeconomic variables in the Bahraini economy, including the CPI. However, since then changes have been made in the reporting of inflation figures, which provide analysts with advantages and disadvantages. The monthly reporting of disaggregated data does allow us to look more deeply into the relation of money and prices over shorter periods of time, yet we are constrained in what we can do from a sophisticated statistical standpoint because of data limitations. While Annual Consumer Price Index figures using a consistent base year (2006) go back to 1990, the database of consistent monthly Headline Rates of consumer inflation is quite limited, covering the period since August 2007 only. Disaggregated CPI data by consumer sector is even more limited, dating back to January 2009. Data on the GDP deflator on an annual basis go back to 1989, but the base year was changed in 2011 from 2001 to 2010. The transition to a new base year was coupled with a redefinition of nominal GDP by the Central Informatics Office (CIO), but recalculated time-series data were limited to the period since 2006 only. Thus, to create a consistent time series of deflator values for the period 1990-2013 we had to couple the actual deflator data reported under the 2001 base year for 1990-2006 with an imputed value of that deflator for the period 2007-13. We did so by applying each additional year's GDP inflation in the new 2010 series to the previous year's deflator based on 2001. The resultant time series of annual CPI and Deflator data appear in the appendix. …

Did the Euro Harm the Greek Economy?

Beginning in 1992, Greece’s economy was at least partially managed consistent with European Union (EU) membership. Greece joined the EU on January 1, 2001, adopting the Euro at a conversion rate of 340.75 Drachmas per Euro.From 1995-2000, Greece had 3.2% average GDP growth, 5.5% consumer inflation, a 10.5% unemployment rate, and a government deficit of 4.5% of GDP. After 11 years of EU membership, Greece’s 2012 GDP growth rate is minus 6.4%, its consumer inflation rate is 1.0%, its unemployment rate is 25.4%, and its government deficit is 7.6% of GDP. Some economists suggest that Greece, as did Argentina, should default on its debt.This paper reviews two competing theories for Greece’s economic decline: (1) Greece was disadvantaged by EU membership, by switching to the Euro, and by subsequent austerity measures; or (2) Greece accumulated excessive debt, creating an economic bubble.I examine these theories by defining the conditional exchange rate for the Drachma as the rate that would have prevailed if Greece had not adopted the Euro. Under a Drachma regime, I assume that Greek policymakers would have attempted to keep an investment-grade credit rating. I account for economic adjustment, and calculate values of the following Greek economic variables for 1990-2012: the conditional exchange rate of the Drachma, the debt-to-GDP ratio, the growth rate of real GDP, prevailing interest rates, and other relevant macroeconomic variables.

Core Inflation and Trend Inflation

Abstract This paper examines empirically whether the measurement of trend inflation can be improved by using disaggregated data on sectoral inflation to construct indexes akin to core inflation but with a time-varying distributed lags of weights, where the sectoral weight depends on the timevarying volatility and persistence of the sectoral inflation series and on the comovement among sectors. The modeling framework is a dynamic factor model with time-varying coefficients and stochastic volatility as in Del Negro and Otrok (2008), and is estimated using U.S. data on seventeen components of the personal consumption expenditure inflation index.

МЕХАНИЗМ ПЕРЕКРЕСТНОГО СУБСИДИРОВАНИЯ КАК ИНСТРУМЕНТ УПРАВЛЕНИЯ ПОТРЕБИТЕЛЬСКОЙ ИНФЛЯЦИЕЙ

МЕХАНИЗМ ПЕРЕКРЕСТНОГО СУБСИДИРОВАНИЯ КАК ИНСТРУМЕНТ УПРАВЛЕНИЯ ПОТРЕБИТЕЛЬСКОЙ ИНФЛЯЦИЕЙ

Is ICT a new essential for national economic growth in an information society?

This paper attempts to empirically verify the theoretical assumption that ICT factors affect national economic development. To this end, this study will use a research model to examine the relationship between ICT and development through statistical evidence. IT infrastructure, IT competence, IT investment and IT trade size will be selected as variables reflecting ICT factors since these are widely used by the balance model of supply and demand. Also, this paper will employ several socio-economic factors such as population size, consumer inflation, national corruption and education as control variables. A panel data analysis was used to statistically verify the impact of national ICT capability on a country's development. Furthermore, this paper tried to find an intervening variable between ICT and national development such as national corruption, consumer inflation and national education that have been highlighted as important elements of national development from political and social perspectives, and improved explanatory power of the analysis model. This result indicates that these variables mediate ICT capacity's effects on each surveyed nation's economic growth. This study verified statistic relevance for the effects that ICT capacity has on economic development.

Consumer Inflation Uncertainty and the Macroeconomy: Evidence from a New Micro-Level Measure

Although uncertainty plays an important role in economic decisionmaking, empirical measures of individuals’ uncertainty are rare. The literature on cognition and communication documents that people use round numbers to convey uncertainty. This paper introduces a method of quantifying the uncertainty associated with round responses in survey data, allowing construction of micro-level uncertainty measures from pre-existing data. To demonstrate the usefulness of this method, I construct a measure of inflation uncertainty since 1978 and provide support for its validity. Mean inflation uncertainty is countercyclical and correlated with inflation disagreement, inflation volatility, and the Economic Policy Uncertainty Index. Inflation uncertainty is lowest among high-income consumers, college graduates, males, and stock market investors. More uncertain consumers are more reluctant to spend on durables, cars, and homes. Round number responses are common on a variety of other surveys, suggesting applications of this method for measuring uncertainty about other variables.

Variations in health care delivery within the European Union

European Union (EU) healthcare systems, whether they are National Health Services or Social Insurance systems, are going through difficult times. Governments, the healthcare community and the public are increasingly concerned about the growth of health spending and the sustainability of their healthcare systems. The current economic crisis—the most intense, comprehensive and long lasting in post-war Europe—with its corollary of tax revenue falling, increased social needs and financial failure of the States, has contributed decisively to accentuate this concern, and placed health spending (along other items of social spending) as a critical aspect of the policies to control public sector deficits. While some of the contemporary concerns are directly related to the current economic crisis the recession has exerabated pre-existing problems. The pressures on all healthcare systems are familiar but resistant to resolution. First, there have been changes in morbidity patterns with the emergence of chronicity and multi-morbidities as the main drivers of healthcare utilization in developed countries. Disease is now evolving into a continuum of exacerbations and relapses leading to long-term functional impairment. These new morbidity patterns require changes in existing organizational structures and the integration of fragmented healthcare delivery systems. Unfortunately an evidence base to facilitate such innovation is absent. Second, the acceleration of technological change (in preventive, diagnostic, therapeutic, surgical, biological, imaging and other technologies), with a very rapid incorporation of new drugs, tests and devices into routine clinical practice has fuelled expenditure inflation. These new technologies sometimes involve significant clinical innovations (although not always cost-effectively) and, in other cases, the ‘innovation’ is limited to increased in prices (rather than to improved clinical outcomes). The combination of new drugs and technologies …

How to Define the Consumer Perceived Price Index? An Application to Polish Data

Inflation perceived by consumers may differ from official statistics, particularly due to different baskets of goods and services that lay people and statisticians consider and due to consumer loss aversion to price increases. Such effects, as suggested by the prospect theory, are confirmed in many empirical studies showing that consumers’ perceptions are substantially influenced by prices of frequent purchases and that price increases are perceived more strongly than price reductions. Following those observations, alternative consumer price indices were proposed, such as the out-of-pocket price index (ECB 2003) or the index of perceived inflation (Brachinger 2006, 2008). They proved particularly useful in interpreting a jump of inflation perception in some of the Economic and Monetary Union (EMU) economies after the euro introduction. The role of price changes of frequently bought goods and services in determining consumer opinions on price changes also seems significant in Poland, as revealed especially after its accession to the European Union (EU) in 2004. To assess whether their impact on subjectively perceived price changes is of a systematic nature, in this paper we develop different types of indices of price changes that are likely to influence consumer opinions on observed price developments. Then we evaluate them in terms of their impact on consumer inflation perception, as proxied with survey data, and define on this basis the best-performing index, called the consumer perceived price index (CPPI). The results suggest that Polish consumers observe a relatively wide range of goods and services and that both factors suggested by the prospect theory seem to influence their opinions on the evolution of prices in the past.

What Common Factors are Driving Inflation in CEE Countries?

In this paper, we analyse the sources of time variation in consumer inflation across ten Central and Eastern European (CEE) countries and five sectors (durables, semidurables, non-durables, food, and services) in the period 2001-2013. With a multi-level factor model we decompose product-level HICP inflation rates into the following components: CEE region wide, sector, country, country-sector, and idiosyncratic. The outcomes indicate that region-wide and country specific components of inflation are more persistent than sector and product-level components, which is in line with similar studies for core EU countries. Two region-wide factors explain about 17% of variance in monthly price changes, whereas the other common components explain below 10% each. The results are at odds with empirical evidence on the importance of sectoral price shocks in developed economies and the volatility-persistence puzzle. This difference may be related to the conclusion that the first region-wide factor is associated with common disinflationary processes that occurred in CEE economies in 2000s, whereas the second one reveals significant correlations with global factors, especially commodity prices and euro area price developments.

The Run between Economists and Management Experts: Rajan Scores

The Reserve Bank of India (RBI) under the leadership of Raghuram Rajan takes a firm stand not to cut interest rates unless inflation cools to a new low of predetermined figure and for a sufficient long time. From October 2014 wholesale inflation has come down to the five-year low of 1.8 percent and the consumer inflation cols to a three year low of 5.5 percent. The run up to the fifth bi-monthly monetary policy announcement finds an intense debate between the supporters and the naysayers to the interest rate cut by the RBI. Mythili Bhusnurmath supports the rate cut. She advances her argument by quoting the words of Peter Drucker. This article examines her argument and finds that a management expert turned economist such as Rajan would not fall behind a pure economist in the run of fighting inflation and balancing India’s growth requirements. The article finds the research gaps so that further study can be carried out to establish the link between inflation-push growth and poverty alleviation of India. A study may also be done to find the link between inflation led growth and long-term economic development.

Commodities Prices Volatility, Expected Inflation and GDP Levels: An Application for a Net-exporting Economy

This work applies time series methods, such as VAR, ARMA-GARCH and Cointegration/VEC, in order to test for short and long term relationships between commodities prices changes and relevant macroeconomic variables in Brazil, from January/2005 to May/2013. The main evidences have shown the existence of short term effects of commodities prices shocks on the expected and current consumer inflation, as well as on GDP and exchange rate levels; in turn, the long term relationships have been verified through changes in commodities prices volatility: in long term, an increase of the latter means a context of higher expected inflation and lower GDP levels, thereby showing that economic authorities have scientific reasons to concern with abrupt fluctuations in commodities markets. In this sense, volatility in commodity markets is not neutral.

Inflation Expectations in Poland, 2001-2013 Measurement and Macroeconomic Testing

This paper presents survey-based direct measures of inflation expectations of consumers, enterprises and financial sector analysts in Poland. It then goes on to provide the results of testing those features of inflation expectations that seem the most important from the point of view of monetary policy and its transmission mechanism. The study is the revised version of the NBP Working Paper no. 115 [Lyziak (2012)]. It uses new measures of consumer inflation expectations and covers the updated sample (2001-2013). Characteristics of inflation expectations in Poland are diversified across the analyzed groups of economic agents. Inflation expectations of financial sector analysts and enterprises outperform those of consumers in terms of their accuracy and information content, although consumer inflation expectations are also to some extent forward-looking.

Inflação implícita e o prêmio pelo risco: uma alternativa aos modelos VAR na previsão para o IPCA

O presente artigo avalia, para o caso brasileiro, se a inflação implícita extraída dos títulos de renda fixa constitui um estimador não viesado da inflação ao consumidor, medida pelo IPCA. Nossas estimativas sugerem que as break-even inflation rates - ou simplesmente BEIRs - trazem informação relevante a respeito da inflação futura, especialmente para a maturidade de três meses. A principal inovação de nosso trabalho, contudo, está no método utilizado para a estimação, que nos permite concluir que o prêmio de risco da inflação, para algumas das maturidades consideradas, varia ao longo do tempo e não é desprezível do ponto de vista econômico. Comparamos também as previsões de inflação obtidas a partir das BEIRs com os modelos VAR utilizados pelo Banco Central e as estimativas dos Top5 do Relatório Focus. As previsões realizadas com as BEIRs mostraram maior acurácia que aquelas extraídas dos modelos VAR, porém, menos precisas que as geradas pelos Top5.

How to Define the Consumer Perceived Price Index? The Case of Poland

Inflation perceived by consumers may differ from official statistics particularly due to different baskets of goods and services lay people and statisticians consider and by consumer loss aversion to price increases. Such effects, as suggested by the Prospect Theory, are confirmed in many empirical studies, showing that consumers are substantially influenced by prices of frequent purchases and that price increases are perceived more strongly than price decreases. Following those observations, particularly useful in interpreting a jump of inflation perception in some of the EMU economies after the euro introduction, an alternative price index, i.e. the Index of Perceived Inflation, was proposed by Brachinger (2006) and Brachinger (2008). The role of price changes of frequently bought goods and services in determining consumer opinions on price changes was also significant in Poland, especially after its accession to the EU. To assess whether this effect is of a systematic nature, in this paper we develop different indices of price changes of frequently bought goods and services in Poland, including the Index of Perceived Inflation. Then we evaluate these indices vs. CPI inflation in terms of their impact on consumer inflation perception, as proxied with survey data. The results suggest that Polish consumers observe a relatively wide range of goods and services and that both factors suggested by the Prospect Theory seem to influence their opinions on evolution of prices in the past. Having the measure of perceived inflation – i.e. the Consumer Perceived Price Index (CPPI) – that seems more adequate than current CPI inflation on the one hand and survey-based measures of perceived inflation scaled with respect to the trend of CPI inflation on the other hand, we use it as a scaling factor to derive a probability measure of consumer inflation expectations in Poland. Then we compare forecasting accuracy of this measure with respective results based on the measure of consumer inflation expectations quantified in a standard manner.

Syntetyczne wskaźniki wyprzedzające w prognozowaniu inflacji w Polsce

We present the procedure for a systematic selection of short-term leading indicators for Polish consumer inflation (CPI) from large number of predictors. Using data set of 189 economic and financial time series (available from July 2009 to November 2012) we select the indicators highly (in-sample) correlated with future inflation from 1 to 12 months ahead. Then we perform a direct forecasting exercise on a real-time data base from December 2010 to November 2012. Compared to individual leading indicators we find that few common factors extracted from a principal component analysis (named composite leading indicators) are successful tools for predicting future inflation being precise, unbiased, and more robust to changes in a number of predictors and common factors.

The Impact of Government Expenditure on the Greek Government Debt: An Econometric Analysis

Sovereign debt crisis in advanced economies keep increasing and its government are implementing fiscal policies to reduce it. Greece is an example of a country whose government debt is a matter of grave concern since it has received the second bailout but still threatens to default. The main aim of this study is determine the impact of government expenditures and government incomes on government debt. This paper estimates the effect of government expenditure on debt in Greece via the vector error correction model framework and granger causality model with annual data from 1976 to 2011 which was collected from the World Development Indicators, European Commission data base and the International Monetary Fund. Vector Error correction Model framework is used to estimate our model and Vector Autoregression Granger causality to determine the direction of causation.The results show a significant negative relationship between gross government debt and gross national income as well as gross government debt and net foreign direct investment. A significant positive relationship is found between gross government debt and gross national expenditure and gross government debt and inflation. The past values of gross national expenditure and gross national income have a predictive ability in determining the present value of gross government debt and not vice versa. Knowing this effects will help policy makers of these countries and the world at larger to revisit its fiscal policy in order to reduce its debt and sustain it. DOI: 10.5901/mjss.2013.v4n3p323

Exploring the Relationship between the CPI and the PPI: The Colombian Case

This article explores the nature of the existing relationship between the Producer Price Index (PPI) and theConsumer Price Index (CPI). In particular, it seeks to determine whether the PPI can be considered a leadingindicator of the CPI, using the methodology of coincident profiles proposed by Martinez (2010), which modifiesthe one presented by Banerji (1999). Previous studies for Colombia and other countries found links of all typesbetween these two price indexes. Yet, there is no evidence of previous studies that have eliminated themethodological differences between the two baskets, at least in the international literature reviewed for thisarticle. However, when these discrepancies are removed (homogenization of items and weights), desirableresults are found for the Colombian case; namely, the PPI leads the CPI and, depending on the analyzed group,this leadership might anticipate evolution of the CPI by one month or even more. These findings clearly areuseful as input to improve consumer inflation forecasting models and the monetary authority’s decision-makingprocess.