Weekly Updates
Weekly Updates
- Consumer inflation expectations keep shifting. The US Michigan consumer inflation expectations survey has swung around over the past year. Consumer inflation expectations in Europe have also fluctuated, though not as dramatically as in the US. These moves do not matter.
- Consumers’ inflation expectations have little to do with inflation reality. Consumers assume that what they think is happening to prices today will just continue in the months and years ahead. Consumers’ perception of price moves today is also heavily biased toward a narrow group of high-frequency purchases. This means that today’s food and fuel prices drive consumers’ inflation expectations.
- This helps to account for the bigger swings in expectations in the US—where consumers’ fuel prices are more volatile than in Europe. It may also account for why the inflation expectations of younger Europeans are more volatile than those of older Europeans. Gen Z has a different set of high-frequency purchases than does Gen X.
- These movements in inflation expectations rarely matter. Inflation expectations are important only if they change consumer behavior. If consumers’ higher inflation expectations lead to higher wage demands, for instance, economists will need to pay attention. There is no evidence of this at the moment—indeed, wage demands are generally moderating.
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