Inflation has devastated families and businesses in recent years, but Americans expect annual price increases to return to near prepandemic levels.
The latest evidence to support their optimism is a survey of business leaders conducted four times a year by the Cleveland Federal Reserve. Top executives expect the inflation rate to fall to an average of 3.4%, using the consumer price index, over the next 12 months.
The good news is that the CPI already exists.
The inflation rate in the 12 months ending in December was already at 3.4%, and is expected to fall to 2.9% in the January report, due Tuesday morning.
A better measure of future inflation, however, was slightly higher. At the end of 2023 the core consumer price index, which excludes food and energy, stood at a 12-month rate of 3.9%.
A lengthy consumer survey, meanwhile, also found that Americans expect inflation to continue to decelerate toward prepandemic levels.
According to the consumer confidence survey, households expect inflation of 2.9% next year.
What both of these surveys show is that inflation expectations are what the Federal Reserve likes to call “well anchored.” In other words, no one expects inflation to rise or fall much from current levels.
The Fed, of course, wants inflation to return to 2% per year. It’s not there yet, but the central bank’s job will be easier if both consumers and businesses believe it can achieve its goal. This is because inflation expectations – whether high or low – are often self-perpetuating.
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