Today the University of Michigan Consumer Confidence survey was released. One of the data points the survey includes is an inflation expectation series, asking consumers what they expect as far as consumer price changes go. In recent years, economists have worried that relatively low inflation may lead consumers to expect lower inflation, leading to a downward cycle of weakening inflation. The good news is, since late 2016 the University of Michigan series have stabilized, as shown in the chart below.
We also like to compare various inflation expectations series from different surveys on a like-for-like basis. To do so, we z-score all of them by taking a given period’s reading and measuring its departure from its all-period average in standard deviations. That adjusts them all for volatility and different levels. As shown, these series have all stabilized around similar levels over the past year or so. That’s good news for members of the FOMC that are worried about inflation expectations getting too low. But at the same time, while recent inflation readings have been strong, there hasn’t been an uptick in expectations for future inflation from consumers.