NY Fed Report: 'Improving Survey Measures of Household Inflation Expectations'

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Researchers at the Federal Reserve Banks of New York and Cleveland have been working to improve on how they collect data on household inflation measures.  Such measures are vital to understanding consumer behavior, and, the researchers argue, affecting central bank policies.  In a new report available this week in the New York Fed's Current Issues, the researchers note limitations in current surveys, like those in the monthly Reuters/University of Michigan Survey of Consumers, and set about to address those limitations.  But their report is also interesting in how income levels can affect the way families anticipate inflation.  Take a look at these fluctuations:


Other interesting features of the data emerge when we examine “rate of inflation”expectations across income groups,differentiating between high- and low-income respondents. Chart 4 presents the median inflation forecast and the 25th and 75th percentiles of the forecast distribution for each group (with the difference between percentiles representing our measure of disagreement for each group), while Chart 5 depicts median inflation uncertainty for each group. We derive several findings of note. First, disagreement is generally higher within the low-income group. Second, as December 2008 approaches, inflation expectations diverge across income groups, owing mainly to an increased concern about low inflation— or even deflation—expressed by high-income respondents. Third, disagreement across high-income respondents is marked and persistent beginning in December 2008, but disagreement among those of low income spikes in the summer of 2008 and then falls to pre-crisis levels.We observe very little change in forecast uncertainty within each group during the same period. In fact, median forecast uncertainty actually declines beginning in the fall of 2008.

Interestingly, two distinct views emerged around the time when the federal funds rate approached its lower bound of zero: While the high-income group displayed a marked increase in concern about the risk of deflation, the low-income group generally maintained its concern about ongoing inflation. In addition, a considerable polarization in views occurred within the high-income group, as disagreement more than doubled between September and December 2008 and became comparable to that of the low-income group.

 

Watch an interview with report authors, and read the full report, here.  

(Hat tip: Real Time Economics)


Posted 09-24-2010 9:21 AM by Graham Griffith
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