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Introducing our common inflation expectations index

In a world where the Phillips curve is flat, inflation expectations become the key driver of actual inflation over the medium term. But getting a true handle on inflation expectations is difficult because of the large number of diverse measures that are available. Our new common inflation expectations (CIE) index cuts through the noise by using novel quantitative methods to construct a single unifying monthly measure of medium-term expectations. What we find is that, although expectations are still slightly lower than what is needed for the Fed to hit its 2% inflation target, they have rebounded markedly in recent months and, if that trend continues, it won’t be long before the Fed should start to be concerned about a sustained overshoot in actual inflation.

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