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Ability of a perceived inflation measure to predict the consumer confidence index, 12-month inflation expectations and the inflation in Costa Rica, 2006-2012

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  • Agüero-Morera, Diego
  • Bien-Briceño, Andrés
  • Villalobos-Delgado, Mauricio

Abstract

In this study we computed the IPPC (Buyer's Perceived Inflation Index) in order to approximate the perceptions of consumer price inflation in Costa Rica from July 2006 to December 2012. Based on Brachinger's theory, the CPI methodology was modified by giving greater weight to items that are purchased more frequently. The index was used to estimate ARDL and ARMA models to forecast 12-month inflation expectations, the CCI and the CPI. The index showed a good predictive capability to forecast the CPI for the low-income population and 12-month inflation expectations. When comparing the CPI and the IPPC, the relative difference between both tends to be bigger for higher levels of inflation. In addition, weekly purchased goods and services, such as gasoline, casados and taxi transport have a greater influence on the average of the monthly inter-annual percentage change of the IPPC, while the value of goods purchased biannually or annually is virtually zero

Suggested Citation

  • Agüero-Morera, Diego & Bien-Briceño, Andrés & Villalobos-Delgado, Mauricio, 2016. "Ability of a perceived inflation measure to predict the consumer confidence index, 12-month inflation expectations and the inflation in Costa Rica, 2006-2012," Revista de Ciencias Económicas, Instituto de Investigaciones en Ciencias Económicas, Universidad de Costa Rica, vol. 34(2), July.
    • Handle: RePEc:rce:rvceco:27106
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    References listed on IDEAS

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    1. Georganas, Sotiris & Healy, Paul J. & Li, Nan, 2014. "Frequency bias in consumers׳ perceptions of inflation: An experimental study," European Economic Review, Elsevier, vol. 67(C), pages 144-158.
    2. Brachinger, Hans Wolfgang, 2008. "A new index of perceived inflation: Assumptions, method, and application to Germany," Journal of Economic Psychology, Elsevier, vol. 29(4), pages 433-457, August.
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