Inflation, Informational Environment and Expectations of Households

Abstract

The background information that forms the expectations of economic entities is a significant factor that determines their behavior.The purpose of this study is to identify and evaluate the relationship of inflation, perception and expectation of inflation by households with the parameters of the information (news’) background on the example of the Russian Federation.The materials for processing as a Russian information background were news’ reports issued by leading Russian TV channels and duplicated on the relevant sites, as well as Internet search (the number of news and search queries, the length of the headlines of the text versions of news, the frequency of mentioning certain topics in them, the tonality of texts), GoogleTrends data on internetrequests. The tonality of the texts was evaluated using automatic analyzers EurikaEngine and Repustate. Data from the reports of the Public Opinion Fund for the Central Bank of the Russian Federation posted on its website are also used; these reports contain monthly data on actual inflation (consumer price index) for 12 months and the results of respondents’ surveys on the perception of inflation, inflation expectations, consumer sentiment, assessments of economic and personal prospects, changes in behavior (starting a job search, making large purchases, etc.) and a wide range of other characteristics of public sentiment related to inflation. To process the collected data, correlation and regression analysis was used, as well as specific methods: Granger causality, principal component methods and lasso regression. As a result of the analysis, statistically significant correlations are found, which may be associated with individual reactions to the topics covered, expressed in changes in mood and behavior.Thus, inflation is negatively correlated with the number of political news on the “Russia” channel and with the length of headlines of text versions of political news of the “Pervy” channel, and positively correlated with web-search queries on the topic “Inflation”. Including these variables in a regression that estimates inflation based on lagged values significantly improves the quality of the regression, although their impact is small in terms of absolute values. We analyze how these relations change after the shift in the exchange rate regime and the introduction of inflation targeting. We find that in the period preceding to the shift, web-search demonstrated statistical significance in the equations we evaluate, and political news did not, while in the subsequent period, the opposite was true. We observe a connection between the parameters under consideration with certain aspects of individual behavior, such as the search for a better-paid job, or doing business. Finally, we find imperfections in the information activity of the Central Bank: an increase in the frequency of its mention in the news reduces people’s confidence that the inflation target can be achieved.In conclusion, the authors come to the following fundamental conclusions: the parameters of the information environment may be suitable for operational estimates of inflation, the effect of inflation targeting (i.e. greater controllability of inflationary processes by Central Bank) increases the importance of political news in decisions made by individuals, information policy and the overall image of the Central Bank of the Russian Federation requires improvement.