ESRI Discussion Paper Series No.353
Inflation Expectations and Consumer Spending: Micro-data Evidence

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


This study examines the relationship between inflation expectations and consumer spending.

Using a combination of original consumer survey data on inflation expectations and scanner data on the actual expenditure, we examine whether higher inflation expectations generate greater current spending. The linked data also allows us to directly estimate the value of the elasticity of the intertemporal substitution (EIS) based on a standard macroeconomic model. We find that higher inflation expectations generate greater current spending compared with one year later. We find the value of the EIS significantly positive and approximately 0.1. On the other hand, liquidity-constrained consumers seem to decrease current expenditure in response to higher inflation expectations. This evidence implies that the impact of higher inflation expectations on consumers' intertemporal allocation may vary depending on the type of consumer.

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

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  2. page1
    1 Introduction
  3. page4
    2 Theoretical framework and identification strategy
    1. page4
      2.1. A standard model of consumption in the complete markets
    2. page5
      2.2. Identification strategy
  4. page6
    3 Data
    1. page6
      3.1. Survey of inflation expectations
    2. page8
      3.2. Data about the consumption expenditure
  5. page9
    4 Estimation results
    1. page9
      4.1. Testing the theoretical prediction and estimating the structural parameter of the EIS
    2. page10
      4.2. Robustness check
  6. page11
    5 How do consumers with liquidity constraints respond to a change in their inflation expectations?
  7. page12
    6 Conclusion
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