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Households' Perceived Inflation and CPI Inflation: the Case of Japan


March 2, 2022
Yusuke Takahashi*1
Yoichiro Tamanyu*2


This study analyzes the mechanism of how households' inflation perceptions are formed in Japan and investigates the backdrop of why perceived inflation is higher than CPI inflation. Our cross-sectional analysis using micro-data shows that a variety of factors affect households' inflation perceptions, including their sociodemographic characteristics, which are likely to affect their consumption patterns, their sentiment, and their awareness of the Bank of Japan's "price stability target." We further show that such inflation perceptions, as well as sentiment and awareness of the "price stability target," influence households' tolerance towards price rises. We then analyze how changes in the price of individual goods and services influence perceived inflation using aggregate data and find that a large share of the fluctuations in perceived inflation can be explained by changes in food product and petroleum product prices. In addition, we show that house prices, which are not included in the CPI in Japan, also explain these fluctuations. These results imply that households have in mind a different basket of goods and services from the CPI when they form their inflation perceptions.

JEL classification
D12, E31, E58

Inflation; Inflation perception; Consumer price index; Tolerance towards price rises

The authors are grateful to the staff at the Bank of Japan, especially Kazuhiro Hiraki, Yoshitaka Ichise, Yuto Iwasaki, Sohei Kaihatsu, Takushi Kurozumi, Ko Miura, Ryohei Oishi, and Kenichi Sakura for comments and discussions. All remaining errors are our own. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Monetary Affairs Department, Bank of Japan
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  2. *2Monetary Affairs Department, Bank of Japan
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