Manila, Philippines — A recent discussion paper published by the Bangko Sentral ng Pilipinas (BSP) has shed new light on how Filipino consumers form their expectations regarding inflation, emphasizing the significant role of salient commodities like food, beverages, and transport.
The study, titled “Dissecting Consumer Attention: Insights on Consumers’ Inflation Expectations in the Philippines,” utilizes data from the BSP’s Consumer Expectations Survey (CES) to analyze the factors influencing household inflation expectations. Researchers Cherrie R. Mapa, Mary Kryslette C. Bunyi, Alan Chester T. Arcin, and Eddie Boy L. Fuentes conducted a detailed examination of the commodities that most heavily shape consumer expectations and assessed the predictive accuracy of these expectations compared to those of firms and professional forecasters.
The findings reveal that consumers are particularly attentive to price changes in food and non-alcoholic beverages, which make up a significant portion of household expenses. According to the study, these items receive considerable attention from consumers, aligning closely with their actual expenditure shares. Other notable commodities include alcoholic beverages, tobacco, and transport, which also play a crucial role in shaping inflation expectations.
Interestingly, while housing-related expenses are substantial, they do not appear to receive proportionate public attention. The study suggests that the infrequent visibility of these costs might contribute to their lower salience in the public’s perception of inflation.
The researchers also explored the accuracy of consumer inflation forecasts. They found that while households tend to have larger forecast errors compared to professional forecasters and firms, the higher moments of the distribution of their expectations—such as disagreement and skewness—offer valuable insights into future inflation trends. During periods of rising inflation, increased disagreement among consumers’ expectations could indicate an impending inflationary trend.
These findings have significant implications for policymakers, suggesting that a more targeted communication strategy, particularly focused on salient commodities like food, could enhance the public’s understanding of inflation dynamics. Additionally, continued monitoring of household expectations remains essential, as the distribution of responses provides critical information on potential inflation trajectories.
The study represents a significant contribution to the limited research on consumer expectations in the Philippines, offering a deeper understanding of the drivers behind inflation expectations and highlighting the importance of consumer attention in shaping economic outcomes.
The full paper, “Dissecting Consumer Attention: Insights on Consumers’ Inflation Expectations in the Philippines,” is available through the BSP’s official website for those interested in exploring the detailed findings and methodologies.
