BlackRock Investment Institute

Macro insights

Inflation expectations shrug off surge

The implication of near-term surging prices for longer-term inflation expectations is a key concern for central banks. If inflation expectations drift higher, it could force their hand to raise rates sooner. Yet tracking inflation expectations is difficult. One way is to combine financial market data and information from surveys of consumers, businesses and professional forecasters into a single index. Comparing such an index against actual inflation outcomes shows that although inflation expectations have risen in the U.S., the scale of change is far smaller than the change in actual core inflation prints. Moreover, inflation expectations remain very close to the Fed’s 2% target. See the chart.

The lens of personal experience

Chart showing our measure of inflation expectations not yet reacting to the rise in published inflation

Sources: BlackRock Investment Institute, U.S. Bureau of Economic Analysis, with data from Haver Analytics, October 2021. Note: The chart shows U.S. core PCE inflation and our composite measure of U.S. inflation expecations, which is based on a Federal Reserve research note from September 2020.

One reason for inflation expectations to still be anchored could be personal experience. Many active in the workforce today did not experience the high inflation of the 1970s and 1980s and tend to have lower expectations than those who did. We expect only a limited rise in inflation expectations on the back of the current inflation spurt, allowing the Fed to largely look through the current price pressures.

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Inflation expectations shrug off surge
The implication of near-term surging prices for longer-term inflation expectations is a key concern for central banks.
Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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