| Pub. Date | : Jan, 2024 |
|---|---|
| Product Name | : The IUP Journal of Applied Economics |
| Product Type | : Article |
| Product Code | : IJAE040124 |
| Author Name | : Pramod K Mishra, Satyaranjan Sahu, Chinmaya Behera, Pratap K Jena and B Raja Shekhar |
| Availability | : YES |
| Subject/Domain | : Economics |
| Download Format | : PDF Format |
| No. of Pages | : 21 |
This study investigates how household inflation expectations relate to realized inflation, and uses biased expectations hypothesis (BEH) to understand the association between inflation expectations and realized inflation in the food sector. Household survey data, wholesale price index (WPI), and consumer price index (CPI)-based data on inflation are used in the study and the data was sourced from the Reserve Bank of India (RBI) and Ministry of Statistics and Program Implementation, Government of India. The obtained results were cross-validated using auto-SARIMAX algorithm in a machine learning (ML) framework. The study finds that expected and realized inflation have significant causal relationships; this further supports BEH and reveals how household inflation expectations impact actual market inflation, and vice versa. Hence, these are broadly complementary. However, changes may occur in these aspects, and households and markets must prepare for these changes and plan their future accordingly.
Inflation expectations refer to the degree to which people expect general prices to rise. How individuals expect future prices to fluctuate leads to spending, borrowing, and investments. Eventually, this influences a country's economic situation and policymaking. If households' inflation expectations are better understood, then better policymaking decisions can be made. By contrast, every individual or household faces problems with food price fluctuations on a day-to-day basis. Food price is the most sensible component of household consumption items and is the most publicized data among all consumer price index (CPI) data.