Business leaders predict that inflation will continue to slow

Inflation Optimism: Cleveland Fed Survey Shows Americans Holding onto Hope of Return to Prepandemic Levels

Americans are hopeful that the annual increase in prices will soon return to prepandemic levels, according to a recent survey by the Cleveland Federal Reserve. 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. 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 2023.

A long-running survey of consumers also found that Americans expect inflation to continue to decelerate toward 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 2% a year and is counting on consumers and businesses both thinking it will succeed in reaching its target. Inflation expectations often feed on themselves, so it’s important for both groups to have confidence in the central bank’s ability to control prices. Financial markets are also counting on consumer-price inflation falling below 3% for the first time since 2021, which may help ease some of the pressure on households and businesses struggling with rising costs during these uncertain times.

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