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Allison Schrager: One Year Inflation Expectations and How Higher Prices May Affect Them

Economists and pundits remain divided on whether the current higher inflation is transitory or a new normal. But transitory inflation can become permanent if it alters expectations. If everyone expects higher inflation it can become self-fulling because they demand higher wages and raise their prices. So far, it seems higher prices are influencing expectations. The following figure from the Survey of Consumer Expectations from the New York Fed, shows Americans expect higher prices to stay around. Though there is a difference across ages. Older Americans, who have experience inflation in the past, expect 6% higher prices next year. Younger Americans expect 4.5%. This suggests inflation may be around for a while.

Source: Survey of Consumer Expectations, © 2013-21 Federal Reserve Bank of New York (FRBNY). The SCE data are available without charge and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.

Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.

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Posted: September 15, 2021 Wednesday 12:30 AM