Mar 28, 2022 - Economy

Inflation expectations hit highest level since 1981

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Even though the Fed has started hiking rates, consumers and investors think price rises will be tough to rein in.

Why it matters: Economists watch inflation expectations because they can act as a self-reinforcing prophecy.

Driving the news: A fresh reading Friday from the University of Michigan confirms inflation expectations remain at the highest level since 1981.

State of play: Some of this surge is clearly tied to the war in Ukraine, and related energy and commodity cost surges.

  • Longer-term measures of inflation expectations — like those that look out over a 10-year horizon — are lower.

The bottom line: If the Fed is going to get inflation under control in the short term, it may still have to break, or at least slow, the expectation that prices are going to continue creeping steadily higher.

  • That might mean hiking rates faster, and harder, than people now expect.
  • Markets aren't going to love that.
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