Hope for Prepandemic Inflation Levels as Consumers, Executives and the Fed Align Expectations

Business leaders predict that inflation will continue to slow

Americans are hopeful that the annual increase in prices will return to close to prepandemic levels, according to a recent survey by the Cleveland Federal Reserve. Top executives expect the rate of inflation to taper to an average of 3.4% using the consumer-price index in the next 12 months.

The good news is that the rate of inflation in the 12 months that ended in December was already at 3.4%, and it’s expected to drop to 2.9% in the January report, due out Tuesday morning. However, a better measure of future inflation, which was somewhat higher, showed that the core CPI, which omits food and energy, stood at a 12-month rate of 3.9% at the end of 2023.

A long-running survey of consumers also found that Americans expect inflation to continue to decelerate toward prepandemic levels. Households expect 2.9% inflation in the next year, according to a consumer sentiment survey. What both surveys show is that inflation expectations are well anchored, meaning nobody expects much movement from current levels.

The Fed wants inflation to return to 2% a year but it’s not there yet yet. The central bank’s job will be easier if consumers and businesses both think it will succeed in reaching its target because inflation expectations often feed on themselves.

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