The Model of Inflation Expectations Estimation with Consideration of Inflation Formation Factors in Russia

Worldwide, governments, central banks, research and financial institutions are investing resources to survey consumers about their inflation expectations. Indeed, inflation expectations are relevant to people’s decisions about savings, investments, purchasing durable goods, and wage negotiations – which, in turn, affect economic activity and realized inflation. Because of the key role in the pricing process, inflation expectations are under the close control of central banks. In this paper an alternative way of estimating inflation expectations in Russia is proposed in comparison with that used by the Central Bank of Russia. Two models were evaluated - based on the BEI (breakeven inflation) indicator in the United States with adjustments to the risk premium; and based on the prices of Russian bonds. As a result, the first model is not significant, but the second gives the results that correlate with the realized inflation better than the expectations by the model of Central Bank of Russia.