The influence of negative response style on survey-based household inflation expectations

The study identified a sub-group of respondents adopting a negative response style in consumer tendency surveys and investigated their influence on aggregate household inflation expectations. Households prone to negative response style were identified using multi-group latent class models. The data source was the State of the Household Survey, conducted following European Commission methodology, in Poland between 1999 and 2010 (45 quarters). Although group size for households with negative response style was shown to fluctuate, negative response was comparable between periods. Micro-level information on response style was used to correct inflation expectations by the creation of additional factors for respondent weights. After compensation: (1) respondent inflation expectations proved more consistent with professional forecasts; (2) there was significantly better correlation between inflation expectations and consumer confidence; (3) compensated inflation expectations demonstrated the Ball-Friedman hypothesis; whereas, this pattern did not emerge for uncorrected data. Of the available household characteristics, income and age were the only significant determinants for negative response style.