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Date : 21 Jan 2014
Correlation Between Measures of Inflation and Inflation Expectations

Annex 2

Correlation Between Measures of Inflation and Inflation Expectations

Both WPI and CPI-Combined series are highly correlated with 3-month ahead inflation expectations. However, in both cases, movement has been directionally different at times.

C33

1-year ahead and 3-month ahead inflation expectations and their relationship with food and fuel inflation

CPI-IW Inflation and Household Inflation Expectations (IESH)

Sample period: 2008:Q3 to 2013:Q2

Total panel (balanced) observations: 140

Dependent Variable

IESH 1-year ahead

IESH 3-month ahead

Constant

0.16

0.16

 

(1.17)

(1.15)

CPI-IW Food

0.11**

0.13**

 

(2.01)

(2.22)

CPI-IW Fuel and Lighting

0.18*

0.16*

 

(4.18)

(3.83)

CPI-IW excluding Food and Fuel

0.13***

0.09

 

(1.70)

(1.15)

Adjusted R-squared

0.12

0.10

S.E. of regression

1.60

1.60

F-statistic

7.33

6.22

Prob(F-statistic)

0.00

0.00

Note : Figures in parentheses denote t-values. Coefficient significant at *1 per cent ** 5 per cent and ***10 per cent levels.

Note: All the panel regressions were carried out using first differences of the variables.

WPI Inflation and Household Inflation Expectations (IESH)

Sample period: 2008:Q3 to 2013:Q2

Total panel (balanced) observations: 140

Dependent Variable

IESH 1-year ahead

IESH 3-month ahead

Constant

0.24**

0.22***

 

(2.05)

(1.83)

WPI- Food Items

0.02

0.03

 

(0.42)

(0.53)

WPI-Fuel Group

0.22*

0.24*

 

(5.16)

(5.46)

WPI-Non-food

-0.15

-0.23***

Manufactured Products

(-1.09)

(-1.76)

Adjusted R-squared

0.34

0.32

S.E. of regression

1.39

1.39

F-statistic

24.64

22.65

Prob(F-statistic)

0.00

0.00

Note: Figures in parentheses denote t-values. Coefficient significant at *1 per cent ** 5 per cent and ***10 per cent levels.

Note: All the panel regressions were carried out using first differences of the variables.


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