What Do Consumers Think Will Happen to Inflation?

Armantier, Olivier; Boumahdi, Fatima; Koşar, Gizem; Somerville, Jason; Topa, Giorgio; Van der Klaauw, Wilbert; Williams, John C.

Discussion Paper

What Do Consumers Think Will Happen to Inflation?

Abstract: This post provides an update on two earlier blog posts (here and here) in which we discuss how consumers’ views about future inflation have evolved in a continually changing economic environment. Using data from the New York Fed’s Survey of Consumer Expectations (SCE), we show that while short-term inflation expectations have continued to trend upward, medium-term inflation expectations appear to have reached a plateau over the past few months, and longer-term inflation expectations have remained remarkably stable. Not surprisingly given recent movements in consumer prices, we find that most respondents agree that inflation will remain high over the next year. In contrast, and somewhat surprisingly, there is a divergence in consumers’ medium-term inflation expectations, in the sense that we observe a simultaneous increase in both the share of respondents who expect high inflation and the share of respondents who expect low inflation (and even deflation) three years from now. Finally, we show that individual consumers have become more uncertain about what inflation will be in the near future. However, in contrast to the pre-pandemic period, they tend to express less uncertainty about inflation further in the future.

Keywords: inflation expectations;

JEL Classification: D84; E31;