Price indices

• The Company has not timely filed the Delayed Form 10-Q because additional time is needed to complete the Companys financial closing process for the quarterly period ended March 31, 2021.
• Collectively, these products accounted for approximately 15% of total 2020 revenue and 5% of total 2019 revenue.
• In conjunction with its assembly operations, CPI Aero provides engineering, program management, supply chain management, and MRO services.
• CPI Aero is a registered trademark of CPI Aerostructures, Inc. For more information, visit www.cpiaero.com, and follow us on Twitter @CPIAERO .

• According to the economic report, the consumer-price index jumped 0.6% in March, mostly due to the rising oil prices.
• However, the key risk is if their assumption turns out to be wrong, and price pressures remain elevated.
• In fact, with consumers\' inflation expectations rising, this is could translate to actual rise in price levels."
• I am impressed with our team\'s ability to generate these gold targets so quickly and look forward to getting a drill turning quickly this spring.

• Our Real House Price Index (RHPI) adjusts nominal house prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow, said Fleming.
• Indeed, a walk down house price memory lane shows us that nominal house prices alone are not always a good measure of affordability.
• In the chart , nationwide nominal house prices, real house prices, and house-buying power are all indexed to January 1990.
• The next release of the First American Real House Price Index will take place the week of April 26, 2021 for February 2021 data.

Prepared by Aidan Meyler and Lovisa Reiche

• Other things being equal, when economic agents anticipate that inflation will increase, they perceive the real interest rate to fall.
• Inflation expectations also play an important role in the wage and price-setting process and are thus an important determinant of future inflation.
• Therefore, understanding the nature of economic agents inflation expectations and how they are formed is crucial for monetary policymakers.

• This article analyses consumers inflation expectations using data available from the European Commission Consumer Survey (ECCS).
• There are several ways of measuring inflation expectations: they can be derived from financial market instruments, surveys of professional forecasters and business or household surveys.
• This article focuses on consumer inflation perceptions and expectations taken from the harmonised ECCS.
• [3] This analysis helps address some of the more puzzling stylised facts of these inflation expectations, namely that: (a)the average perception/expectation has tended to be systematically above, although co-moving with, actual inflation; (b) there is an apparent negative correlation between inflation expectations and economic sentiment;(c) there is substantial heterogeneity both across countries and across individuals in terms of the levels of inflation expectations.

• [4] Furthermore, we confirm that consumers that report being in a better financial situation and who have positive expectations about the economy as a whole are associated with lower inflation expectations, and that this also holds when controlling for sociodemographic factors.
• [5] We also offer explanations for both the bias in quantitative inflation expectations vis--vis actual inflation and their negative relationship with economic sentiment.
• Furthermore, those who have a negative attitude about the economy as a whole also tend to be more uncertain about the inflation outlook and to report higher inflation expectations.
• Section2 provides an overview of aggregate euro area consumers inflation perceptions and expectations.
• Section5 discusses how the (un)certainty framework helps explain reported inflation expectations, and Section6 concludes.

2 The nature of consumers’ inflation expectations

• Consumers qualitative inflation perceptions and expectations have tended to broadly co-move with actual inflation.
• The qualitative responses to the questions on inflation perceptions and expectations are summarised using a balance statistic.
• The most noticeable divergence is in consumers inflation perceptions following the introduction of the euro notes and coins.

Chart 1

Changes in euro area consumers’ qualitative inflation perceptions and expectations and actual HICP inflation (left-hand scale: balance statistics; right-hand scale: HICP inflation as percentages)
• When asked to quantify their inflation perceptions and expectations, consumers, on average, tend to report significantly higher figures than actual inflation.
• Chart 2 presents the quantitative inflation perceptions and expectations reported by euro area consumers in the ECCS.
• For perceptions, the mean since 2004, at 8.7%, is substantially above the average HICP inflation over the same period (1.5%).
• [7] The lower quartile (i.e.the 25th percentile) averaged 3.6%, which is also substantially above actual inflation.
• The lower quartile has averaged 2.0%, which indicates that approximately 75% of consumers reported inflation expectations higher than 2%.

Chart 2

Changes in euro area consumers’ quantitative inflation perceptions and expectations and different measures of inflation (percentages)
• The peak correlation with actual inflation has tended to be slightly lagging for inflation perceptions and broadly contemporaneous for inflation expectations.
• Table 1 shows that the contemporaneous correlation of quantitative expectations with different measures of HICP inflation over the period 2004-2020 is somewhat higher than for quantitative perceptions, while the reverse holds for the qualitative figures.
• Overall, however, no single expectation or perception measure correlates more than the others with actual inflation across all HICP measures and time periods.
• Over the most recent five-year period (the figures in brackets in Table 1), the correlation of the quantitative estimates with actual inflation is relatively low, except for food price inflation.

Table 1

The contemporaneous correlation of consumers’ qualitative and quantitative inflation perceptions and expectations with various measures of inflation (correlation coefficients)

3 Looking at consumers’ inflation expectations through the lens of uncertainty

• The apparent rounding observed in consumers quantitative inflation expectations points to uncertainty in reported inflation expectations.
• A considerable share of euro area consumers reports their quantitative expectations (and perceptions) using round numbers (most notably multiples of 5 and 10), while other consumers report to single digits or even to decimals.
• Chart 3 shows noticeable peaks at 0%, 5%, 10%, 15% and 20%, with a smaller distribution of respondents reporting to single digits.
• We use the round numbers suggest round interpretations principle to identify the existence of an uncertainty channel which may influence reported inflation expectations.

Chart 3

Histogram of responses from -10% to +50% (y-axis: frequency of response as percentages)
• The uncertainty framework is flexible enough to help provide an understanding of average inflation expectations over the period 2004-2020, as well as in specific periods when inflation has been relatively high and relatively low respectively.
• For instance, the left panel of Chart 4 shows the distribution of quantitative inflation expectations in July 2008 (when overall HICP inflation was 4.1%).
• At this time, there were noticeable peaks at multiples of 10 as high as 50%, while the share of respondents reporting 0% inflation was relatively low.
• Among those who reported to single digits or even more precisely, the modal answer was 3%-4%.

Chart 4

Distribution of responses at specific points in time Histogram of responses from -10% to +50% (percentages)
• Those reporting in digits and decimals can, on average, be considered more certain, whereas those reporting in multiples of five and ten can be considered uncertain.
• The respective shares of each group in the overall survey population can be derived for each survey month.
• [10] On average, approximately one-third of respondents are more certain, while two-thirds are more uncertain (report to multiples of 5 or 10).

Chart 5

Increase in uncertainty during periods of economic distress Share of uncertain respondents (percentages)
• While uncertain respondents may not precisely quantify inflation, they appear able to capture the broad developments in inflation.
• The upper panel of Chart 6 shows that the modal expectations of certain consumers are not too far off, and evolve broadly along with, actual inflation.
• Thus, even if their level of expected inflation is biased with respect to actual inflation, the changes over time correlate closely.

Chart 6

Modal inflation expectations of the “certain” group and the “uncertain” group (percentages)

Box 1 Consumers’ inflation expectations during the COVID-19 pandemic – applying the uncertainty framework

• During the early months of the first wave of the coronavirus (COVID-19) outbreaks and lockdowns in Europe, there was an extraordinary movement in consumers inflation expectations, in particular compared with that for perceptions.
• In March and April 2020 consumers quantitative inflation expectations rose, while their quantitative perceptions fell slightly and, for the first time, mean expectations for future inflation were higher than perceptions of past inflation.
• It is challenging to reconcile these movements in inflation perceptions and expectations between February and June with actual inflation developments.
• It also stood at the same rate (0.6%) in June as in April, and thus cannot explain the reversion in perceptions or expectations.
• These developments in food price inflation could therefore potentially partly explain the changes in expectations but not the changes in perceptions.
• Viewing consumers quantitative inflation perceptions and expectations through the lens of uncertainty can help explain their apparently puzzling evolution.
• Chart A shows the change in the share of consumers reporting specific inflation perceptions and expectations in April 2020.

Chart A

Changes in inflation perceptions and expectations from March to April 2020 Changes in histogram of responses from -10% to +30% (percentage points)

4 What determines whether individuals are (un)certain?

• Whether a consumer is certain about price developments can depend on sociodemographic characteristics and economic sentiment.
• To analyse this, we look at the probability that a consumer is certain about inflation and try to explain this using a range of sociodemographic and economic sentiment variables.
• [14] The sociodemographic variables include characteristics, such as age, level of formal education, gender and income quartile.
• On average, and other things being equal, a higher income and higher level of formal education contribute positively to an individuals estimated probability of being certain.

Chart 7

Estimated probability that a consumer is certain about inflation expectations – sociodemographics (percentages)

Chart 8

Estimated probability that an individual is certain about inflation expectations– economic sentiment (percentages)
• The probability that an individual is certain about inflation expectations differs significantly across euro area countries.
• The upper panel of Chart 9 shows that those countries where consumers are estimated to be more certain also have a lower mean inflation expectation across the time periods.
• This suggests that the certainty channel plays an important role in explaining the differences in reported inflation expectations across countries in our sample.

Chart 9

Negative relationship between certainty and inflation expectations across countries (x-axis: estimated probability that a consumer is certain about inflation for a modal individual in each country; y-axis: mean inflation expectation (January 2004 – September 2020)) (x-axis: estimated probability that a consumer is certain about inflation for a modal individual in each country; y-axis: mean HICP (January 2004 – September 2020))

5 Does this (un)certainty framework help explain and foster greater understanding of inflation expectations?

• The role of (un)certainty in consumers quantitative inflation expectations is estimated with a model.
• First, the linear effects of sociodemographic and economic sentiment variables on quantitative inflation expectations are estimated.
• [17] Moreover, to control for potentially different macroeconomic environments, actual inflation (HICP), inflation forecasts by Consensus Economics and GDP growth by country and time are incorporated.
• At the aggregate level, this model replicates stylised facts on the impact of sociodemographics and economic sentiment on inflation expectations.
• The fitted values from the model closely match the actual measured inflation expectations.
• Using this model to estimate the inflation expectation of an average person (i.e.
• mean values in all categories) and averaging across countries for the whole sample period yields a value close to the measured mean expectations (Chart 10, Panel a).

Chart 10

Estimated inflation expectations – fitted versus survey results (percentages)
• [19] Applying the above model to each group separately shows that sociodemographic and sentiment variables have a smaller impact on the inflation expectations of the certain group (Table 2).
• The difference in inflation expectations between the certain and uncertain groups is visualised in Chart 10, panel b and estimated over all time periods separately.
• These results also hold in a model version that controls for perceptions, given their strong link with expectations.
• [20] However, it should be noted that even consumers who are certain overestimate inflation.

Table 2

Contribution of “certainty” to the level of inflation expectations Magnitude of coefficients in the model (coefficients from a linear model with inflation expectations as the dependent variable)

6 Conclusion

• Inflation (un)certainty is a channel that sheds light on some of the more puzzling aspects of reported quantitative inflation expectations.
• First, the (un)certainty lens helps explain why we can observe high estimated aggregates despite rather low inflation.
• This is because in conditions of uncertainty many consumers report rounded numbers, whereby they often quantitatively overestimate inflation.
• Furthermore, the uncertainty channel is also a possible explanation for the negative correlation sometimes observed between the economic outlook and inflation expectations.
• [22] We show that this correlation could reflect increased uncertainty, which, in turn, increases reported inflation expectations.