So far, the Fed is not too worried about inflation. They think the latest uptick is transitory, the result of the economy reopening. But consumers are not so sanguine. This picture shows consumer inflation expectations, from the University of Michigan Surveys of Consumers. They asked survey respondents their inflation outlook for the next year in March of 2019, 2020, and 2021. 20% expect inflation to be more than 5% this year, and only 14% expect it to be the same as last year or lower. There is also more uncertainty than in years past.
This is important because economists believe inflation expectations determine future inflation. People make buying and investment plans and negotiate wages based on their inflation outlook. Inflation can be costly to the economy and hard to control once it takes off. Consumer expectations can tell us a lot about where the economy may be headed and are usually fairly accurate. However, the survey also predicted high inflation in 2008, which never materialized.
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