Who is Driving the Recent Decline in Consumer Inflation Expectations?

Who is Driving the Recent Decline in Consumer Inflation Expectations?


The expectations of U.S. consumers about inflation have declined to record lows over the past several months. That is the finding of two leading surveys, the Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) and the University of Michigan’s Survey of Consumers (SoC). In this post, we examine whether this decline is broad-based or whether it is driven by specific demographic groups.

The SCE is a two-and-a-half-year-old monthly survey of heads of U.S. households and differs from the SoC in several respects:

  • The SCE focuses primarily on expectations about economic outcomes related to inflation, the labor market, and household finance.
  • The SCE relies upon a larger sample of respondents (about 1,300 monthly versus about 500 for the SoC). It also uses a rotating panel (each month the SCE adds around 170 new respondents who stay in the panel for up to twelve consecutive months before rotating out).
  • The surveys also differ with respect to the way a respondent’s inflation expectations are elicited. The SCE asks directly about the “rate of inflation,” which seems to provide more reliable responses. Perhaps more importantly, the SCE not only elicits a traditional point forecast for what a respondent thinks future inflation will be, but also elicits the full belief-distribution of respondents by asking them to assign probabilities to different ranges for future inflation outcomes.
  • Although both surveys ask respondents for their inflation expectations for the same short-term horizon (one year), the SCE asks about a specific medium-term horizon (three years), while the SoC asks about aless clearly defined long-term horizon (five to ten years).

Despite these differences, the same pattern has been observed recently in the two surveys: As indicated in the chart below, the median inflation expectations at the short-term and at the medium-/long-term horizons have been declining relatively steadily in both surveys.


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