Inflation break-even as of today: 2.61%
Figure 1: 5 year Treasury-TIPS spread (blue), expected 5 year inflation from DKW (red), both in %. Source: Treasury via FRED, Fed.
2.61% compares with the 2.4% spread reported on 2/27.
For March, the NY Fed median 5 year ahead inflation reading is 3.05%, U.Michigan at 3.2%, compared to the average Treasury-TIPS break-even of 2.55%, and DKW average estimate of 2.64%.
From the latest U. Michigan survey:
“Long-run inflation expectations ticked up from 3.2% last month to 3.4% this month, the highest reading since November 2025. In 2024, values ranged between 2.8% and 3.2%, while in 2019 and 2020, they were consistently below 2.8%.”
We need to give some weight to consumer expectations, since consumers and not bond traders make consumer spending decisions.
Speaking of bond traders, so far, the 5-year/5-year forward inflation expectation is well-behaved at 2.15%, with elevated inflation break-evens limited to inside 5 years. Elevated consumer inflation expectations are clearly not limited to inside 5 years. If 5-year/5-year forward inflation expectations get frisky, too, that’ll probably change what the Fed sees when it “looks through” the current supply shock.