Expected rate of inflation

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Expected rate of inflation

The public's expectations for inflation. These expectations determine how large an effect a given policy action by the Fed will have on economic activity.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Expected Rate of Inflation

Investor and public expectations of current or future inflation. These expectations may or may not be rational, but they may affect how the market reacts to changes in target interest rates. For example, the market usually responds well to a cut in interest rates, but if investors expect inflation to go higher in the near future and the Federal Reserve cuts rates, the market may not react positively.
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References in periodicals archive ?
He added that the expected rates of inflation are appropriate in the light of the stabilisation of real estate prices at acceptable rates compared to previous years, noting that the inflation is not expected to rise above the expected percentage except in cases of emergency rise of the global commodity prices, which will have repercussions on the domestic market.
Darby (1975), Feldstein (1976), and Tanzi (1976), in their empirical studies have shown that nominal long-bond interest rates, in the absence of tax adjustment, must change by more than the change in the expected rates of inflation, after tax, for the real rate to be invariant.
While this may be true on average, long-term Blue Chip Consensus forecasts are only updated semiannually, and therefore some of the changes in the expected rates of inflation may have been left in the RPDs and grouped with the inflation risk premium.
(5.) Lars Jonung, "Perceived and Expected Rates of Inflation in Sweden," American Economic Review, vol.
In contrast with the idea that variations in nominal yields are principally the product of variations in expected rates of inflation, this paper finds evidence that real rates of interest were non-constant in all countries.
measured rates of inflation may have been biased estimates of the expected rates of inflation.
Only as they became convinced of sustained, lower rates of inflation, did they build these into lowered, expected rates of inflation and lower nominal rates of interest.
The virtue of net discount rate values is that they automatically adjust both G and K when expected rates of inflation change.
But, in practice, expected rates of inflation are difficult to observe.
The tax-free expected rates of inflation from the Michigan survey for one year ahead may be used to compute the expected one-year real rate of interest by subtracting it from the observed market rate for the period.

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