Inflation has caused significant problems for households and businesses in recent years, but Americans are optimistic that the annual increase in prices will soon return to pre-pandemic levels. The latest evidence supporting this optimism is a survey by the Cleveland Federal Reserve of business leaders. Top executives expect the rate of inflation to decrease to an average of 3.4% using the consumer-price index in the next 12 months.
The good news is that the CPI is already there. The rate of inflation in the 12 months that ended in December was already at 3.4%, and it’s expected to drop to 2.9% in the January report, which will be released on Tuesday morning. However, a better measure of future inflation was somewhat higher. The core CPI, which excludes food and energy, stood at a 12-month rate of 3.9% at the end of 2023.
A long-running survey of consumers also found that Americans expect inflation to continue to decelerate towards pre-pandemic levels. Households expect an inflation rate of 2.9% in the next year, according to the consumer sentiment survey. What both surveys show is that inflation expectations are well anchored, meaning nobody expects inflation to move significantly up or down from current levels.
The Fed wants inflation to return to its target of 2% per year, but it’s not there yet. However, if consumers and businesses both believe that it will succeed in reaching its target, the Fed’s job will be much easier. That’s because inflation expectations – whether high or low – often feed on themselves.
Financial markets are also counting on consumer-price inflation falling below 3% for the first time since 2021, as reported by one article published online (source: [Financial markets are counting on consumer-price inflation to fall below