Rise in Inflation Expectations Recalls Hurricane Katrina: Chart of the Day

A jump in inflation expectations probably won’t concern Federal Reserve officials meeting next week because it reflects a surge in gasoline prices rather than the outlook for broader costs, economists said.

Expectations for the inflation rate in one year rose to 4.6 percent in March from 3.4 percent in February, according to the Thomson Reuters/University of Michigan consumer sentiment survey released today.

The CHART OF THE DAY shows that one-year expectations closely track gasoline prices, as they did when Hurricane Katrina disrupted oil supplies in August 2005. The average price of a gallon of gasoline in the U.S. was $3.54 yesterday, the highest since October 2008, as Middle East turmoil drives up crude costs.

“We doubt this pickup alone would be enough to get the Fed too worried,” said Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto, in an e-mail. “Officials will be watching these expectations gauges like a hawk to make sure that expectations remain anchored.”

The Federal Open Market Committee meets March 15 in Washington and is forecast to maintain its $600 billion bond- buying program to boost the economic recovery. Fed Chairman Ben S. Bernanke told Congress on March 1 that the rise in commodities is likely to lead to a “temporary and relatively modest increase” in overall prices.

Expectations for inflation in five years rose to 3.2 percent from 2.9 percent, according to the sentiment survey. Richard Curtin, the University of Michigan professor who directs the survey, said in a statement that “this same modest rise in long-term rates was recorded in 2008, indicating that consumers expect the sharp increases to be temporary.”

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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