Wednesday, October 11, 2017

Expectations of Inflation

Are consumers and investors starting to believe inflation will rise? A September survey by the Federal Reserve Bank of New York, released yesterday, shows consumers expect annual inflation will be at 2.8 percent three years from now. That's up from 2.6 percent in the previous reading, and is the highest level since April.

Another survey of inflation expectations for the next year, from the University of Michigan, climbed to 2.7 percent last month, from 2.6 percent a month earlier. In the bond market, the differential between nominal and inflation-adjusted Treasury yields, known as breakevens, show expected annual inflation of 1.89 percent over the next 10 years, up from less than 1.7 percent in June.

But this inflation hasn't started up yet. The Fed’s preferred measure of inflation, the personal consumption expenditures price index, was up 1.4 percent from a year earlier in August.

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