Published: February 12, 2024 at 3:08 PM ET
Inflation has hit households and businesses hard in recent years, but Americans expect annual price increases to return to pre-pandemic levels.
The latest evidence for their optimism comes from a quarterly survey of business leaders conducted by the Cleveland Fed. Executives expect inflation, based on the consumer price index, to slow to an average of 3.4% over the next 12 months.
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Inflation has hit households and businesses hard in recent years, but Americans expect annual price increases to return to pre-pandemic levels.
The latest evidence for their optimism comes from a quarterly survey of business leaders conducted by the Cleveland Fed. Executives expect inflation, based on the consumer price index, to slow to an average of 3.4% over the next 12 months.
The good news is that CPI already exists.
Inflation has already reached 3.4% in the 12 months to December and is expected to fall to 2.9% in the January report due Tuesday morning.
But a better measure of future inflation was a little higher. Core CPI excluding food and energy was 3.9% on a 12-month basis at the end of 2023.
Meanwhile, a long-running survey of consumers also found that Americans expect inflation to continue slowing toward pre-pandemic levels.
According to the Consumer Sentiment Survey, households expect next year's inflation rate to be 2.9%.
Both of these surveys show that inflation expectations are what the Fed calls “well-anchored.” In other words, no one expects inflation to rise or fall significantly from current levels.
The Fed naturally wants inflation to return to 2% a year. Although the goal has not yet been reached, central banks' job will become easier if both consumers and businesses believe they will succeed in reaching it. This is because inflation expectations, whether high or low, often feed on themselves.
Also read: Financial markets expect consumer price inflation to fall below 3% for the first time since 2021
and: Yes, a Big Mac meal may cost $18, but there's one good reason why
