ESRI Discussion Paper Series No.367 The Formation of Inflation Expectations: Micro-data Evidence from Japan

Junichi Kikuchi
Graduate School of International Management,Yokohama City University; Institute of Social and Economic Research, Osaka University
Yoshiyuki Nakazono
Research Fellow, ESRI; Visiting Associate Professor, Yokohama City University


We propose a novel approach for measuring inflation expectations, which can alleviate the rounding number problem. Further, we examine how consumers form inflation expectations. We find that consumers heterogeneously update their information sets on prices; 46% of the consumers collect information about the consumer price index at least once a quarter, while the remaining consumers less frequently or never obtain this information. We also find that forecast revisions are sensitive to a change in food prices. More than half of consumers are attentive only to a change in food prices and may form their inflation expectations using food price changes as a signal of fluctuations in the overall inflation rates. The existence of consumers who are inattentive to inflation casts doubt on the transmission of monetary policy through the management of expectations.

Structure of the whole text(PDF-Format 1 File)

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    • 1. Introduction
    • 2. Survey and inflation expectations
    • 3. Do consumers’ forecasts respond to a change in the oil price?
    • 4. Conclusion