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Digging into the Downward Trend in Consumer Inflation Expectations
Since mid-2014, the long-run inflation expectations of consumers have been declining. Many commentators blame the decline on gasoline prices, which have also been falling since that time, but we argue that this explanation is incomplete. We analyze University of Michigan Surveys of Consumers microdata and find that a decline in uncertainty about future inflation is a modest part of the story over this period?but it represents the entire story when considering changes in expectations since 2012.
The CPI–PCEPI Inflation Differential: Causes and Prospects
The Federal Open Market Committee’s inflation target is stated in terms of the personal consumption expenditures price index (PCEPI). The PCEPI, like the consumer price index (CPI), measures inflation in the expenditures of households, but these indexes differ in purpose, scope, and construction. Notably, since the CPI is used as the reference rate for numerous financial contracts, one can derive implied longer-run CPI inflation forecasts from financial contracts. Such forecasts are widely reported. But if policymakers are to use these forecasts to guide their pursuit of the inflation ...
Thinking Outside the Box: Do SPF Respondents Have Anchored Inflation Expectations?
Despite the stability of the median 10-year inflation expectations in the Survey of Professional Forecasters (SPF) near 2 percent, we show that not a single SPF respondent?s expectations have been anchored at the target since the Federal Open Market Committee?s (FOMC) enactment of an inflation target in January 2012, or even since 2015. However, we find significant evidence for ?delayed anchoring,? or a move toward being anchored, particularly after the federal funds rate lifted off in December 2015.