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.
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.
|