Abstract

This study examines the potential effects of perceptions and cognitive biases on the link between household inflation expectations and consumption and spending decisions. Using the quarterly Bangko Sentral ng Pilipinas (BSP) Consumer Expectations Survey (CES) for the period 2010 - 2023, this research looks at how households’ assessment of future inflation affects their decision to spend on durable and non-durable goods. The study makes a distinction between households’ qualitative perception (i.e., future inflation will either increase, decrease or remain the same) and quantitative assessment (i.e., expected percentage point increase or decrease in inflation) of future inflation. Preliminary results show that Filipino households often perceive that prices will increase for basic commodities like food (i.e., rice, meat, fish and seafood), fuel, transport and utilities (i.e., light and water). Nonetheless, households’ inflation expectations in the Philippines are driven more by their quantitative assessment of price changes. As to consumption spending, households’ inflation expectations are predicted to affect more the consumption demand for durable goods and services. These findings could have significant implications on the effectiveness of monetary policy in influencing household consumption through the inflation expectations channel.