How Do Households’ View on Inflation Expectations Affect Their Consumption Decisions?

This study explores how households perceive future price changes and the subsequent impact of these perceptions on their consumption decisions. Using data from the Bangko Sentral ng Pilipinas Consumer Expectations Survey covering the period Q1 2010 to Q1 2024, the empirical results reveal that expectations of higher prices prompt households to increase their planned consumption in the near-term, particularly of essential goods. Moreover, when inflation expectations reach 5 percent or higher, a greater proportion of households express their intention to boost their consumption expenditures. The study also examines the potential impact of economic shocks. Households’ inflation expectations tend to increase with rising international prices for oil and rice and decrease in response to higher policy rates and currency appreciation. Consequently, household consumption in the near term declines with an increase in policy rates but rises with higher international prices of oil and rice and a depreciation of the Philippine peso. Following an oil price shock, the probability of households purchasing durable goods within the next 12 months rises. These findings underscore the significant effects of economic shocks on inflation expectations and household consumption. 

Cymon Kayle Lubangco joined the BSP in January 2023 as a Junior Central Bank Associate in the Department of Economic Statistics. He was transferred to the BSP Research Academy in April 2024 as a Research Associate II. Within the Academy, Cymon has been involved in research focusing on inflation dynamics, inflation expectations, financial literacy, and remittances. Prior to joining the BSP, he participated in various research projects focusing on economic outlooks, estimation of losses from diseases, and economic losses from disasters, and computable general equilibrium modelling. His work on these areas has been published in academic journals.

Cymon has a bachelor’s degree in economics and a minor in global politics from the Ateneo de Manila University (summa cum laude), and a master’s degree in economics from the same university, with support from the BSP Talent Acquisition through Scholarship program. He occasionally teaches economics in the university.

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