Annex 2

Correlation Between Measures of Inflation and Inflation Expectations

Both WPI and CPI-Combined series are highly correlated with 3-month ahead inflation expectations. However, in both cases, movement has been directionally different at times.

1-year ahead and 3-month ahead inflation expectations and their relationship with food and fuel inflation

CPI-IW Inflation and Household Inflation Expectations (IESH)

Sample period: 2008:Q3 to 2013:Q2

Total panel (balanced) observations: 140

Note : Figures in parentheses denote t-values. Coefficient significant at *1 per cent ** 5 per cent and ***10 per cent levels.

Note: All the panel regressions were carried out using first differences of the variables.

WPI Inflation and Household Inflation Expectations (IESH)

Sample period: 2008:Q3 to 2013:Q2

Total panel (balanced) observations: 140

Note: Figures in parentheses denote t-values. Coefficient significant at *1 per cent ** 5 per cent and ***10 per cent levels.

Note: All the panel regressions were carried out using first differences of the variables.