Report

The Curious Case of the Rise in Deflation Expectations


Abstract: We study the behavior of U.S. consumers’ inflation expectations during the high inflation period of 2021-22 using data from the Survey of Consumer Expectations. Short- and, to a lesser extent, mediumterm inflation expectations rose as inflation surged in 2021. Disagreement and uncertainty about future inflation increased significantly. Then, in 2022, even as inflation continued to climb, medium- and longerterm inflation expectations unexpectedly fell and medium- and longer-term deflation expectations increased. We find that respondents with deflation expectations tend to expect prices to mean revert and are more optimistic about the economic outlook.

Keywords: inflation; deflation; expectations; consumer surveys;

JEL Classification: D12; D84; E31; E52;

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Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2022-10-01

Number: 1037