In recent years, inflation has caused significant problems for households and businesses. However, a recent report from the Cleveland Federal Reserve shows that Americans are optimistic that the annual increase in prices will soon return to prepandemic levels. The report is based on a four-times-a-year survey of business leaders, who expect the rate of inflation to decrease to an average of 3.4% over the next 12 months, using the consumer-price index.
The good news is that the consumer-price index is already at a 3.4% inflation rate, and it is expected to drop to 2.9% in the January report. However, the core CPI, which omits food and energy, stood at a 12-month rate of 3.9% at the end of 2023, indicating that future inflation may be somewhat higher.
A long-running survey of consumers also found that Americans expect inflation to continue to decelerate toward prepandemic levels, with households expecting 2.9% inflation in the next year, according to the consumer sentiment survey. These surveys indicate that inflation expectations are “well anchored,” meaning that nobody expects inflation to move up or down much from current levels.
The Federal Reserve aims to have inflation return to 2% a year, and the central bank’s job will be easier if consumers and businesses both believe it will succeed in reaching its target. High or low inflation expectations often feed on themselves, so it’s important for them to be well anchored.