A New Way to Measure Inflation Expectations Has Bad News
A conversation with John Leer, chief economist at Morning Consult, to discuss its survey innovation and the warning signal it is flashing.
Many consumers rely too heavily on their experiences at the gas station and the supermarket to predict inflation.
Photographer: Tim Boyle/Getty Images
Federal Reserve policymakers believe that inflation expectations are self-fulfilling prophecies, and they’re dead set on preventing them from moving materially higher. But expectations are hard to measure in real time, and the most popular household surveys are limited by respondents’ often poor understanding of what inflation truly is. They may confuse price levels with inflation (a rate of change), and they tend to over-extrapolate from a few narrow experiences at the gas station and the supermarket.
Of course, economists and survey architects are aware of these shortcomings, and there’s been considerable enthusiasm around the idea of making the questions more intuitive and personal. Morning Consult, in work with economists from the Federal Reserve Bank of Cleveland, introduced a survey question last year that asks consumers how their incomes would have to change to make them “equally well-off,” given their expectations about prices in the next 12 months. In the past couple of weeks, the Morning Consult metric — drawn from weekly surveys of 20,000 people on average — jumped to a record. I spoke to John Leer, chief economist at the decision intelligence company, about the recent data. A lightly condensed and edited transcript of the conversation follows.