A survey of business leaders conducted four times a year by the Cleveland Federal Reserve shows that top executives expect the inflation rate to ease to an average of 3.4% using the consumer price index over the next 12 months. Meanwhile, a long-running survey of consumers found that Americans expect inflation to continue to slow towards pre-pandemic levels, with households expecting inflation of 2.9 percent in the coming year, according to a survey on consumer sentiment.

The good news is that the CPI is already there, with the inflation rate in the 12 months ending in December at 3.4%, and expected to drop to 2.9% in the January report due on Tuesday morning. However, a better measure of future inflation was slightly higher, with Core CPI, which excludes food and energy, at a 12-month rate of 3.9% at the end of 2023.

Despite this slight discrepancy, both surveys show that inflation expectations are “well anchored,” meaning no one expects inflation to move much up or down from current levels. This is what the Federal Reserve wants to hear as it tries to bring inflation back down to its target rate of 2% per year. While it’s not there yet, if both consumers and businesses believe it will succeed in its goal, the Fed’s job will be easier. This is because inflation expectations often feed on themselves, meaning that if people believe prices are going up or down based on what others expect, they may start adjusting their own behavior accordingly.

By Editor

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