Working Paper: Modeling Consumers’ Confidence and Inflation Expectations

No: WP-2019-025

AUTHOR: Ashima Goyal and Prashant Parab

TITLE: Modeling Consumers’ Confidence and Inflation Expectations

Abstract : Using Consumer Confidence Survey data we analyze socio-economic as well as macroeconomic factors that influence inflation expectations of Indian households. We discover that inflation expectations of households depend largely on inflation perceptions, income and education of the respondents, as well as their outlook on the economy, employment and spending. Women, lower income individuals and less educated persons tend to have higher inflation expectations. Macroeconomic variables like inflation, repo rate and GDP growth rate influence inflation expectations positively. Along with these variables, Reserve Bank of India inflation projections influence inflation expectations. Therefore, the Reserve Bank has a significant role in anchoring inflation expectations via communications. Since a rise in Repo, as well as lower growth, raise inflation expectations, it must also give weight to growth under inflation targeting.

Keywords: Consumer Confidence Survey; Inflation expectations; Socio-economic variables; Ordered Logit; Central Bank Communications

JEL Code: C30, D83, D84, E52, E58