Tuesday, January 6, 2015
US Inflation Expectations Measured By Atlanta Fed Surveys
The Atlanta Federal Reserve reviews inflation surveys of professional forecasters, households and firms that actually set prices priced upon their expectations of future costs. The results are interesting. The forecasts of professional forecasters are very close to observed inflation rates and there is wide agreement within the group. Households believe that inflation will be considerably higher than actual inflation, and there is wide variability among households. For example, 13% of households expect inflation to be above 10%. If they acted on their expectations, their behavior would be very irrational. They would be foolish to save at current interest rates, and they would take on as much debt and they could service. A significant share of households are misinformed about inflation and its implications. The expectations of firms are much closer to the expectations of professionals but there is more variance within the sample. That may reflect differences between business sectors.