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Abstract

We evaluate the directional accuracy of inflation forecasts based on the survey data of urban savings account holders in China. By using a new market-timing test, we show that the urban consumers' expectations of inflation are not as useful predictor of the overall consumer price index (CPI) and the urban household CPI (U-CPI) in China. However, after our in-depth analysis using the inflation rate of each cagtegory in the U-CPI basket, we find that the consumers' forecasts are useful in predicting the movement of the residence component in the U-CPI basket since the third quarter of 2009.