Consumer’s inflation expectations in Brazil

Abstract

This paper investigates what are the main components of consumer’s inflation expectations. We combine the FGV’s Consumer Survey with the indices of inflation (IPCA and government regulated prices), professional forecasts disclosed in the Focus report, and media data which we crawl from one of the biggest and most important Brazilian newspapers, Folha de São Paulo, to determine what factors are responsible for and improve consumers forecast accuracy. We found gender, age and city of residence as major elements when analyzing micro-data. Aggregate data shows the past inflation as an important trigger in the formation of consumers expectations and professional forecasts as negligible. Moreover, the media plays a significant role, accounting not only for the expectations formation but for a better understanding of actual inflation as well.