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Press Release

Which Prices Affect Inflation Expectations? It Depends on Who You Ask.

This Economic Commentary shows that inflation expectations of professional forecasters and consumers are predicted by very different prices and have historically appeared to place different weights on different inflation components. Researchers Chris CamposMichael McMain, and Mathieu Pedemonte find that professional forecasters weigh a relatively wide range of prices similar to those found in the consumer price index, while consumers seem to focus more narrowly on prices they see more often, such as those for food and new vehicles.

“While professional forecasters may be little fazed by large increases in some components of inflation, consumers might be highly weighting these categories and raising their inflation expectations, thereby affecting their economic decisions and thus future inflation,” say the researchers. “The fact that typical consumers may prioritize different basket components relative to those prioritized by professional forecasters generates a rift in inflation expectations between the two groups.”

Understanding the prevalence and magnitude of these differences can help inform policies that aim to anchor consumers’ expectations more generally, while communicating with the public about why prices are changing in certain key sectors may help avoid any long-lasting changes in consumers’ inflation expectations.

Read more: Understanding Which Prices Affect Inflation Expectations

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

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