Robust Empirical Regularities on the Heterogeneity of Inflation Across Consumer Goods

120 Pages Posted: 10 May 2022 Last revised: 12 Dec 2023

See all articles by Bingxin Ann Xing

Bingxin Ann Xing

ESSEC Business School

Bruno Feunou

Bank of Canada

Roméo Tédongap

ESSEC Business School

Date Written: April 25, 2022

Abstract

We define the individual excess inflation rate (IEIR) for a consumer good as its individual inflation rate (IIR) minus the CPI inflation rate. We document considerable cross-sectional heterogeneity in consumer goods' IEIRs, which we explain by their differential exposures to a set of macroeconomic factors capturing common sources of price variation. It includes pro-cyclical factors, such as long-term inflation expectations, wages, and consumer sentiment, as well as counter-cyclical factors, such as the unemployment gap, economic policy uncertainty, and financial conditions. Our findings indicate that, on average, 40\% of the variation in IEIR across goods is accounted for by the heterogeneity in goods' price responses to macroeconomic disturbances. Consumer goods with higher price sensitivity to pro-cyclical factors are associated with lower IEIR, while goods with higher price sensitivity to counter-cyclical factors are linked to higher IEIR. These results remain robust after considering other potential drivers, such as the volatility and persistence of disaggregated inflation.

Keywords: Individual Goods Inflation, Phillips Curve, Cross-Sectional Asset Pricing, Fama-MacBeth Procedure, Inflation Risk Premium

JEL Classification: E31, E37, C32, C43, C55, G12

Suggested Citation

Ann Xing, Bingxin and Feunou, Bruno and Tédongap, Roméo, Robust Empirical Regularities on the Heterogeneity of Inflation Across Consumer Goods (April 25, 2022). Available at SSRN: https://ssrn.com/abstract=4093286 or http://dx.doi.org/10.2139/ssrn.4093286

Bingxin Ann Xing

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
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France

HOME PAGE: http://bingxin-xing.com

Bruno Feunou

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada
613-782-8302 (Phone)

HOME PAGE: http://sites.google.com/view/bruno-feunou/home

Roméo Tédongap (Contact Author)

ESSEC Business School ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France
+33134439734 (Phone)
+33134439734 (Fax)

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