How Important are Inflation Expectations in Driving Asian Inflation?

Abstract

Using simple statistical methods, this note examines the relationship between expected and actual inflation and the importance of inflation expectations in driving actual inflation in Asia. We find that, in Asia, short-term inflation expectations tend to co-move among economies while international energy and food price inflation seems to be an important driver of inflation expectations. The analysis of impulse responses also suggests that inflation expectations appear to play an important role in driving actual inflation, with expectation shocks having significant dynamic effects on actual inflation in many Asian economies.

Full publication: Globalisation and Inflation Dynamics in Asia and the Pacific

Keywords: expected inflation, co-movement, energy/food price, impulse response analysis

JEL Classification: E31