Understanding Inflation Expectations

In today's economic landscape, understanding the importance of inflation expectations is valuable for everyone—from everyday consumers to business owners and policymakers. Inflation expectations are what people think will happen to prices for goods and services in the future. This Fed Talk aims to demystify this concept. Expectations about inflation matter because they play a critical role in economic decision-making which, in turn, will influence actual inflation. For example, if consumers expect higher inflation, they may spend more now. If businesses expect higher costs, they may raise prices preemptively. Both actions can contribute to higher inflation. Because we cannot directly observe inflation expectations, we use various methods to measure them. These methods include surveys, forecasts, and inflation-related financial instruments. October's Fed Talk will highlight the relationship between expected and actual inflation. Our panelists will also be discussing: The definition and relationship between the price level, inflation, and inflation expectations The importance of inflation expectations for the decisions of consumers and firms The factors that influence inflation expectations, such as past inflation rates, economic policies, and global events Why central banks are interested in inflation expectations and how central banks can influence these expectations The importance of "well-anchored" inflation expectations Measuring inflation expectations as well as the interpretation and limitations of these measures A closer look at measures of inflation expectations developed and maintained by the Federal Reserve Bank of Cleveland Speakers will include economists from the Federal Reserve Bank of Cleveland's Center for Inflation Research. The Center is a leading resource to better understand all aspects of inflation through the availability of research, indicators, and educational tools. Following the presentation, speakers will take questions from the audience. Speakers Damjan Pfajfar, Vice President, Federal Reserve Bank of Cleveland Robert Rich, Senior Economic and Policy Advisor, Federal Reserve Bank of Cleveland Moderator Chuck Soder, Senior Media Relations Specialist, Federal Reserve Bank of Cleveland