March 24, 2023

Short Horizon Inflation Expectations – Survey and Market Based

One year horizon:

, all in %. November NBER defined peak-to-trough recession dates shaded gray.
Family and firm study based forecasts stay higher than economic expert based forecasts, along with economic expert and market sign based (Cleveland Fed) expectations.
What is fascinating is how household study based expectations have actually diverged in current months from gas costs. Over the 2019-2022 period, each ppt of y/y gas cost inflation is associated with about 0.3 ppts of headline CPI inflation.

Figure 2: Year-on-year CPI inflation (black, left scale), Michigan year-on-year expected inflation, since given date (red, left scale), and fuel cost inflation (green, right scale), all in%. NBER specified peak-to-trough economic crisis dates shaded gray. Source: BLS through FRED, University of Michigan through FRED, EIA through FRED, NBER, and authors computations.
On this basis, I would have expected more of a decline in the Michigan number. Obviously, a lot of other things enter into expectations (along with overall CPI inflation), so I leave this as an open concern.

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