Households say yes (preliminary), while Wall Street economists says no:
Figure 1: Year-on-Year CPI inflation (bold black), U.Michigan February survey mean (prel.) (light blue square), WSJ January survey mean (red triangle), all in %. Source: BLS, U.Michigan, WSJ, and author’s calculations.
While consumer inflation expectations (from the U.Michigan survey) are typically significantly biased upward, over 2025, the mean error is -0.2%, and is not statistically significantly different from zero.
“It’s tough to make predictions, especially about the future.”
— Yogi Berra
Consumers get the rate of inflation wrong, but how do they do with the trend? When they lower their expectations, does lower inflation follow? Between the housing bust and the COVID recession, U Michigan inflation expectations cooled while actual inflation picked up:
https://fred.stlouisfed.org/graph/?g=1RuDG
Looks like a pure backward-looking forecast. Since COVID, not so good, either.
I don’t have a handy series for Wall Street.
I think you should add the Truflation 0.68% value to the graph just for fun. We’re in some pretty weird times right now and my only hope is that the Fed continues to act with a prudence that is lacking in all other areas of the government. The only junk data I can add to this discussion is that the price of gas at the station closest to me dropped 10 cents about a month ago after holding steady for more than 2 years.
Off topic – Sanae Takaichi is one smart politician. After taking leadership of Japan’s LDP last October, she called early elections and absolutely trounced the opposition. Though still apparently intneding to rule in coalition, the LDP now holds 2/3 of seats in the lower house; Takaichi can legislate at will.
This presents an interesting sitiation for interest rate markets. Though Takaichi has paid lip service to fiscal caution, her policies have contributed to the recent rise in bond yields and she pledged during the election campaign to eliminate grocery taxes. Comparison to Liz Truss may be too glib given very different fundamentals, but a further rise in rates seems pretty likely.
A further rise in Japanese rates could make things sticky for Treasuries. The recent rise in U.S. long rates seems to have been driven partially by the rise in Japanese rates. Higher Japanese rates will likely mean higher U.S. market rates.
A question for the crowd: Is an attack on Iran now inevitable?
How often do large military build-ups against second-tier powers not result in violence? Is there some sort of threshold for a military build-up past which we simply shrug and say ” Do it”?
If we do attack Iran, what then? If the Iranian regime survives, do we attack again? I know Bibi wants us to attack, but strategically, is there any point to it?
Under normal circumstances I would say the President would not attack unless he knew he could win. With this guy I would expect some big BOOM- BOOM pictures for the Faux news, before we retreat and declare victory.
The consumer prediction is backward trending. What it means is that inflation has been worse over the past year than even the numbers indicate. Every household clearly understands their bills and costs are a good bit higher today than a year ago. And they expect that trend to not go away soon. Thank you trump for making america unaffordable again.