Demographic changes in inflation expectations

Not only are there differences across surveys of different groups, there are differences across groups within households.

Figure 1: One year ago, average expected CPI inflation from a survey of professional forecasters (blue +), average expected from Michigan Consumer Survey Final (red), average from Federal Reserve Bank of New York Survey of Consumer Expectations (light green ), mean from the Coibion-Gorodnichenko forecast survey [light blue squares], all in %. Michigan inflation forecasts for January. The National Bureau of Economic Research has peak-to-trough recession dates highlighted in grey. A dashed red line in the expanded Russian invasion of Ukraine. Source: University of Michigan via FRED and Philadelphia Federal Survey of Professional Forecasters, Federal Reserve Bank of New York, Coibion ​​and Gorodnichenko, and NBER.

As noted before, expectations drawn from surveys of consumers and households are usually higher than those drawn from surveys of economists. Recently, fixed expectations have been higher than households.

The differences between households and firms are discussed in detail in the excellent survey by Weber, D’acunto, Gorodnichenko, and Coibion ​​(Give2022). Here are some pictures of the diversity among households, by income and education. Since it is difficult to see the difference across the entire sample, I present available data from 2013M06-2022M12 divided into pre-pandemic and pandemic periods.

Figure 1: One year ago, average CPI inflation forecast (bold black), for household income less than $50,000 (brown), between $50,000 – $100,000 (green), more than $100,000 (blue), 2013M06-19M12. Source: NY Fed.

Figure 2: One year ago, average CPI inflation forecast (bold black), for household income less than $50,000 (brown), between $50,000-$100,000 (green), and more than $100,000 (blue) , 2019M01-2022M12. The National Bureau of Economic Research has peak-to-trough recession dates highlighted in grey. Source: NY Fed, NBER.

Figure 3: One year ahead of the expected average CPI inflation (bold black), for high school or lower (tan), high school and some college (green), BA or higher (blue), 2013M01-2022M12. The National Bureau of Economic Research has peak-to-trough recession dates highlighted in grey. Source: NY Fed, NBER.

Figure 4: One year ahead of the expected average CPI inflation (bold black), for high school or lower (tan), high school and some college (green), BA or higher (blue), 2019M01-2022M12. The National Bureau of Economic Research has peak-to-trough recession dates highlighted in grey. Source: NY Fed, NBER.

Bottom line forecasts by income group – Low-income people tend to have higher expectations of inflation. This is true during the pre-pandemic period as well as afterwards. The high expected inflation rates may be a result of the high inflation rates experienced by these groups (ie, the expected high inflation is linked to the current high inflation rates). Remember, the CPI is plutocratic, that is, it represents the consumption package for the household at about 70 percent. It should be noted that, on average, household forecasts were more upwardly biased than those reported in surveys of professional forecasters.

For levels of educational attainment, the degree of bias regarding mean expectations appears to depend on the time period. For example, respondents with high school or less reported higher expectations in 2013-2014, and again in 2021 and mid-2022. These are exactly the times for upward moves in gasoline prices. In other words, these households weigh gasoline prices more than households with lower levels of educational attainment.

As for the companies, Weber et al. (2022) Note:

Observed price signals influence the overall inflation expectations not only of households, but also of company managers, who focus on the price signals they observe in their industries. For example, firms in sectors that have experienced higher inflation recently tend to have higher beliefs about headline inflation, even when these industry-wide price changes are unrelated to overall price changes (Andrade et al. The significance of directly observed price changes As a signal at the individual level that helps explain aggregate inflation expectations is a finding that is widespread in the literature.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *