Title: Consumers' perception of inflation in inflationary and deflationary environment
Authors: Ewa Stanislawska - Narodowy Bank Polski (Poland) [presenting]
Abstract: Survey data on quantitative inflation perceptions are employed to investigate the formation of consumers' opinions about current price developments. Firstly, we compare Polish consumers' estimates of price changes to the consumer price index (CPI) and find out that consumers react more quickly to inflation increases than decreases, and that they ignore small moves in inflation. Moreover, previously stable relation between inflation perception and the CPI inflation was seriously disrupted during deflationary period, leading to smaller perception bias. Secondly, we relax the assumption that consumers perceive price changes in the CPI terms and show that prices of food, housing, water, gas, electricity and clothing - contrary to transport prices - have greater impact on inflation perception than on CPI inflation. Selective attention of consumers to price changes and asymmetric reaction to increases and falls in prices do not explain inflation perception during deflation.