Magazine article Economic Trends

Survey Measures of Inflation Expectations

Magazine article Economic Trends

Survey Measures of Inflation Expectations

Article excerpt


According to the latest figures, the monthly CPI inflation rate decelerated in May, continuing its recent trend after a short-lived spike in early 2012 caused mainly by oil prices. The year-over-year change in the CPI was 1.7 percent at the end of May, which represents the continuation of a steady decline that began last September when the rate was 3.9 percent. The monthly (annualized) rate even came in negative at -3.4 percent. By comparison, it was 5 percent in February.

Both the year-over-year and month-to-month figures largely reflect the effect of energy prices, which make the CPI relatively volatile. On the other hand, the inflation rate for all items excluding food and energy, the so-called core inflation rate, increased 2.4 percent in annualized terms in May. The annual change in that measure has hovered between 2.2 percent and 2.3 percent in the last six months. So, while CPI inflation has fallen since early spring, core inflation has been stable.

The inflation question on everyone's mind is whether the recent pace of inflation will continue in the short and long term. To gauge what households and professional forecasters think about that, we look at two surveys: the University of Michigan's Survey of Consumer Attitudes and Behavior (UM expectations) and the Philadelphia Fed's Survey of Professional Forecasters (SPF expectations) 'The University of Michigan survey is conducted monthly, while the SPF is quarterly. The most recent UM survey was in June, and the most recent SPF was in May. The University of Michigan does not specify a particular basket for its questions on inflation expectations, whereas professional forecasters are asked their opinions on the CPI and the core CPI.


The one-year inflation expectations of households spiked in March, reaching 3.9 percent, most probably due to higher energy costs in the early spring. …

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