Inflation has had a significant impact on households and businesses in recent years, but Americans are hopeful that the annual increase in prices will return to levels close to prepandemic. A four-times-a-year survey by the Cleveland Federal Reserve of business leaders supports this optimism, as top executives expect the rate of inflation to decrease to an average of 3.4% using the consumer-price index in the next 12 months.
The good news is that the CPI is already there, with the rate of inflation in the 12 months ending December at 3.4%, and it’s expected to drop to 2.9% in January’s report. However, a better measure of future inflation was somewhat higher, with the core CPI standing at a 12-month rate of 3.9% at the end of 2023.
On a similar note, a long-running survey of consumers also found that Americans expect inflation to continue decelerating towards prepandemic levels. Households expect an average inflation rate of 2.9% in the next year, according to the consumer sentiment survey. Both surveys suggest that inflation expectations are “well anchored,” meaning nobody expects much movement from current levels.
The Federal Reserve wants inflation to return to its target rate of 2% per year but is not there yet. However, if both consumers and businesses believe it will succeed in reaching this goal, it will make their job easier as inflation expectations often feed on themselves.
In related news, financial markets are counting on consumer-price inflation falling below 3% for the first time since 2021, while some fast food chains may be raising prices due to supply chain issues and labor shortages