NO : WP-2024-018
AUTHOR : Taniya Ghosh and Abhishek Gorsi
TITLE : Inflation Expectations and Keeping Up With the Joneses
ABSTRACT :
This study examines how relative income factors and social comparisons affect Indian households’ inflation expectations. The study uses a one-time primary survey conducted in Nahan, Himachal Pradesh, India, covering 200 households, followed by repeated crosssectional data from the Reserve Bank of India’s Consumer Confidence Survey, covering 5000 households, for further generalization. The results suggest that households that are relatively worse off and find it difficult to maintain their relative position tend to report higher inflation expectations. Furthermore, a measure of households aspirations is constructed based on the reference group’s consumption and income outlook, which the households attempt to match. The findings suggest that as reference group’s consumption and income rise, households report higher inflation expectations. Moreover, when the households experience an increase in personal income, they are more likely to report higher inflation expectations with an increase in the reference group’s consumption and income outlook. However, the relative factors do not impact their inflation expectations when they experience a decrease in personal income. The study thus contributes to a better understanding of the behavioral factors that influence inflation expectations, the heterogeneity in household responses, and the upward bias in inflation expectations among Indian households.
Keywords: Consumption Outlook, Income Outlook, Inflation, Inflation Expectations, Ref-erence Group, Social Comparisons
JEL Code: E310, E710, D120
Weblink: http://www.igidr.ac.in/pdf/publication/WP-2024-018.pdf
