Survey Measures of Expected Inflation and the Inflation Process

Federal Reserve Bank of San Francisco Working Paper No. 2009-10

30 Pages Posted: 8 Mar 2012

See all articles by Bharat Trehan

Bharat Trehan

Federal Reserve Bank of San Francisco

Date Written: February 7, 2010

Abstract

This paper uses data from surveys of expected inflation to learn how the expectations formation processes of households and professionals have changed following recent changes in the behavior of inflation. Households do not appear to have recognized the change in the process, and are placing substantially more weight than appears warranted on recent inflation data when forming expectations about inflation over the next year. At first glance, professional forecasters do appear to have changed how they predict inflation. But a closer look at the data reveals that professionals are placing too much weight on recent core inflation data. These errors show up in a noticeable (absolute and relative) deterioration in the forecast accuracy of both households and professionals.

Keywords: inflation expectations, inflation surveys

JEL Classification: E31, E37

Suggested Citation

Trehan, Bharat, Survey Measures of Expected Inflation and the Inflation Process (February 7, 2010). Federal Reserve Bank of San Francisco Working Paper No. 2009-10, Available at SSRN: https://ssrn.com/abstract=2017901 or http://dx.doi.org/10.2139/ssrn.2017901

Bharat Trehan (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

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