One yr horizon:
Determine 1: CPI inflation year-on-year (black), median anticipated from Survey of Skilled Forecasters (blue +), median anticipated from Michigan Survey of Customers (pink), median from NY Fed Survey of Client Expectations (gentle inexperienced), forecast from Cleveland Fed (pink), imply from Coibion-Gorodnichenko agency expectations survey [light blue squares], all in %. November NBER outlined peak-to-trough recession dates shaded grey. Supply: BLS, College of Michigan through FRED and Investing.com, Philadelphia Fed Survey of Skilled Forecasters, NY Fed, Cleveland Fed and Coibion and Gorodnichenko, and NBER.
Family and agency survey primarily based forecasts stay increased than economist primarily based forecasts, in addition to economist and market indicator primarily based (Cleveland Fed) expectations.
What’s fascinating is how family survey primarily based expectations have diverged in current months from gasoline costs. Over the 2019-2022 interval, every ppt of y/y fuel worth inflation is related to about 0.3 ppts of headline CPI inflation.
Determine 2: Yr-on-year CPI inflation (black, left scale), Michigan year-on-year anticipated inflation, as of given date (pink, left scale), and gasoline worth inflation (inexperienced, proper scale), all in%. NBER outlined peak-to-trough recession dates shaded grey. Supply: BLS through FRED, College of Michigan through FRED, EIA through FRED, NBER, and creator’s calculations.
On this foundation, I might have anticipated extra of a decline within the Michigan quantity. In fact, numerous different issues go into expectations (in addition to general CPI inflation), so I depart this as an open query.
Market primarily based (Treasury-TIPS unfold) primarily based expectations for 5 yr horizon:
Determine 3: 5 yr inflation breakeven calculated as 5 yr Treasury yield minus 5 yr TIPS yield (blue), 5 yr breakeven adjusted by inflation threat premium and liquidity premium per DKW (pink), each in %. Supply: FRB through FRED, Treasury, KWW following D’amico, Kim and Wei (DKW) accessed 12/3, and creator’s calculations.
