Household Inflation Expectations Uncertainty: A Case for Pakistan

Abstract

This study examines the uncertainty of consumer inflation expectations in Pakistan using the data collected by the State Bank of Pakistan (SBP) through the Consumer Confidence Survey (CCS). CCS has been conducted every second month since January 2012. The research employs round numbers to calculate inflation expectation uncertainty and finds it countercyclical and positively correlated with inflation. Further, it also displays a weakly positive correlation with inflation disagreement, inflation volatility, and the Economic Policy Uncertainty (EPU) index. The study also reveals that inflation expectation uncertainty is higher for female, less educated, and young respondents compared to businessmen, males, older people, and educated. The study suggests asymmetric behavior of inflation expectations uncertainty for high and low inflation levels, where uncertainty is high when inflation is high. The study also suggests that inflation uncertainty is significantly related to food inflation. Lastly, the study establishes that inflation expectation uncertainty affects the consumption of durable goods by influencing consumer spending attitudes.