Factors in the Formation of Inflation Expectations as Recorded in the Russian National Survey of Consumer Finance

Abstract

The Bank of Russia uses monthly InFOM survey data to provide a quick estimate of household inflation expectations. A more complete picture of the interrelationships between inflation expectations and the consumer and financial behavior of individuals can be derived from data in the fifth iteration of the Russian National Household Survey of Consumer Finance (Survey of Household Finance — SHF), which for the first time included questions about inflation expectations. This paper compares the results of these surveys, analyzes the reasons for variation of inflation expectations in the SHF, and studies possible ways in which these expectations influence individual behavior. Comparison of the InFOM and SHF data shows that the amount of inflation expected by various socio-demographic groups in the SHF is always higher than in the InFOM survey. However, the inflation expectations in these surveys are not otherwise uniform. Such factors as socio-demographic characteristics, financial situation, perceptions of economic conditions, and the financial literacy of members in a household are the main factors that cause inflation expectations to differ. For example, lower inflation expectations are more typical for young people with higher income and greater financial literacy. The SHF respondents’ decisions about consumption and acquisition of financial assets are nevertheless quite rational. Those who expect higher inflation tend to spend more and at a faster pace while saving less. The results obtained here constitute another argument for maintaining price and financial stability as well as for increasing the financial literacy of the population.