Despite the havoc caused by inflation in recent years, Americans remain optimistic that the annual increase in prices will soon return to pre-pandemic levels. The latest evidence supporting this belief comes from a four-times-a-year survey by the Cleveland Federal Reserve of business leaders. Top executives expect the rate of inflation to taper 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 that ended in December at 3.4%, and it’s expected to drop to 2.9% in the January report, due out Tuesday morning. 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 December.
A long-running survey of consumers also found that Americans expect inflation to continue to decelerate towards prepandemic levels. Households expect 2.9% inflation in the next year, according to the consumer sentiment survey. What both surveys show is that inflation expectations are “well anchored,” meaning nobody expects inflation to move up or down much from current levels.
The Fed wants inflation to return to its target of 2% per year and is working towards achieving this goal by trying to bring prices back down gradually over time through monetary policy tools such as raising interest rates and reducing quantitative easing measures.