{"id":303029,"date":"2026-02-26T10:40:20","date_gmt":"2026-02-26T10:40:20","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/303029\/"},"modified":"2026-02-26T10:40:20","modified_gmt":"2026-02-26T10:40:20","slug":"can-high-inflation-expectations-lead-to-higher-inflation","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/303029\/","title":{"rendered":"Can high inflation expectations lead to higher inflation?"},"content":{"rendered":"

Outgoing Atlanta Fed\u00a0President Raphael Bostic said, at a live event on Tuesday<\/a>: The longer the country is not at the target rate of inflation, the more likely it is they\u2019ll give up on the idea we will reach it. <\/p>\n

So how do we know at what point we\u2019ve been away from ideal inflation for so long that we\u2019re stuck there?<\/p>\n

You know how in \u201cStar Wars: The Empire Strikes Back,\u201d Luke is trying to raise his space ship out of a swamp and then Yoda uses the Force and does it no problem? Luke says, \u201cI don\u2019t believe it!\u201d Yoda responds: \u201cThat is why you fail.\u201d<\/p>\n

This is a common trope in movies, the idea that believing in something, or not believing in something, makes that something happen, or not happen. Inflation is like that.<\/p>\n

\u201cYou can have a self-fulfilling prophecy,\u201d said Yuriy Gorodnichenko, a professor of economics at University of California, Berkeley. \u201cIf you want to buy a car and you think inflation is going to be high in the future, you should be willing to buy this car, now, rather than later.\u201d<\/p>\n

And if everybody does that, then the price of that car goes up.<\/p>\n

\u201cExpect prices to be higher, and end up with higher prices,\u201d Gorodnichenko said.<\/p>\n

Right now, consumers expect high inflation.\u00a0They think, on average, inflation will be 6.5% in a year and 7.2% in five to 10 years, according to the Michigan Survey of Consumers.<\/p>\n

\u201cThat is really, really high. It is relatively easy to create this self-fulfilling prophecy,\u201d Gorodnichenko said.<\/p>\n

The only thing holding consumers back from getting out there and buying stuff and kicking off a vicious cycle is uncertainty about the economy, Gorodnichenko said.\u00a0<\/p>\n

But there is a wrinkle in all of this, which is that we consumers, turns out, are usually very bad<\/a> at predicting inflation.\u00a0\u00a0<\/p>\n

\u201cConsumer expectations haven\u2019t been anchored at the 2% inflation target for the last four-and-a-half decades,\u201d said Michael Weber, a finance professor at Purdue University.\u00a0<\/p>\n

He said the spark for a self-fulfilling inflation prophecy isn\u2019t the number inside consumers\u2019 brains.\u00a0It\u2019s whether that number is changing inside their brains.\u00a0<\/p>\n

And right now it is.<\/p>\n

\u201cInflation expectations keep coming down,\u201d he said.<\/p>\n

So we might not know where we are, but we have better sense of where we\u2019re headed. And if you look\u00a0at it that way, we should be headed for lower inflation. <\/p>\n

But a vicious inflation cycle that can throw all that up in the air is only ever a few painful grocery bills away.<\/p>\n

Related Topics<\/p>\n","protected":false},"excerpt":{"rendered":"Outgoing Atlanta Fed\u00a0President Raphael Bostic said, at a live event on Tuesday: The longer the country is not…\n","protected":false},"author":2,"featured_media":303030,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,19989,219,20407,111,139,69],"class_list":{"0":"post-303029","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-consumer-expectations","10":"tag-economy","11":"tag-inflation-expectations","12":"tag-new-zealand","13":"tag-newzealand","14":"tag-nz"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/303029","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=303029"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/303029\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/303030"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=303029"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=303029"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=303029"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}