Smart Charts in Focus

Charting the Case for Higher Inflation Expectations

Rising headline CPI inflation should support higher U.S. inflation expectations in 2017.


The University of Michigan Inflation Expectation survey shows that longer-term U.S. inflation expectations appear sensitive to recent average headline CPI inflation – suggesting that persistently low inflation increases the risk that inflation expectations can become de-anchored to the downside, creating a self-sustaining cycle of declining inflation.

However, recent dollar appreciation and commodity price declines have depressed core and headline inflation and have contributed to the decline in longer-term inflation expectations. As these effects fade, the expected rise in headline CPI inflation from about 1.5% currently to above 2% by the end of 2017 should bring up average inflation and support future inflation expectations, as shown in the chart.

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