May’s final numbers from the U.Michigan survey are out. Here’s the picture of several one-year-ahead expected inflation rates.
Figure 1: Year-on-year actual CPI inflation (bold black), and expected inflation from University of Michigan (red), NY Fed (light green), Survey of Professional Forecasters (blue +), Coibion-Gorodnichenko SoFIE mean (sky blue squares), and unit cost growth rate (chartreuse), all in %. Source: BLS, U.Michigan via FRED, Philadelphia Fed, Atlanta Fed, Cleveland Fed, and author’s calculations.
Note that one series does not pertain to CPI, namely the unit cost series from the Atlanta Fed’s Business Inflation Expectations survey. The fact that this series is not outstripping expected inflation suggests the absence of a strong cost-price spiral.
Interestingly, the SPF for May is a full percentage point below the Michigan survey median. While it’s typical for the SPF to read below the Michigan (or NY Fed) measures, the SPF has been hitting closer to actual in recent quarters.
Interestingly, the Survey of Firm Inflation Expectations (SoFIE) developed by Olivier Coibion and Yuriy Gorodnichenko remains higher than the consumer/household measures (these are means vs. medians reported earlier; see discussion here).
Bottom line: while inflation expectations have risen in May, they have not risen as much as thought earlier (U.Michigan final is 3.3% vs. preliminary 3.5%). The Survey of Professional Forecasters median at 2.5% is just about on target for the CPI inflation rate implied by a 2% PCE deflator target.
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