ENPNewswire-August 21, 2019--BOI-The Expected Rate of Inflation
Derived from Various Sources
The other half of the rise in the interest rate reflects the increase in the expected rate of inflation
from 1.38 per cent to 2.12 per cent.
The real interest rate - that is, the nominal interest rate minus the expected rate of inflation
- is in turn determined in the long run by structural factors, such as savings and investment.
Meanwhile, the median SPF projection for the 5-year/5-year-forward PCE inflation rate (the average expected rate of inflation
over the five-year period that begins five years from today) has been relatively stable since 2014:Q2 and, at 2.1 percent, currently matches the Blue Chip Economic Indicators consensus for the 5-year/5-year-forward rate of growth in the GDP Chained Price Index.
Proposition 1 The investment demand function [k.sub.t] characterized by condition (9) is increasing in (i) the expected return to capital investment (x); (ii) the expected rate of inflation
([p.sub.t+1]/[p.sub.t]); and (iii) the interest rate on reserves ([R.sup.m]).
Karl Harriman, tax partner at PwC in the West Midlands, said: "The Chancellor pulled a familiar looking rabbit out of a now well-used hat by raising the income tax personal allowance once more above the expected rate of inflation
, with a further increase announced to PS10,800 next year and PS11,000 the following year.
This in and of itself should not change the long teim expected rate of inflation
(although it will change the price level) unless there is a permanent change in expectations as a result of actual or expected government reaction to the shock.
(7) My early work on inflation-indexed bonds with John Campbell formulates an affine two-factor term structure model in which one factor is the log real interest rate and the other the log expected rate of inflation
. An estimation of the model using nominal bond yields and realized inflation for the US shows that both factors exhibit substantial persistence and variability over the post-World War II period.
"Most of the late-August gain was due to more favorable income expectations, with consumers expecting the largest income gains in nearly five years, although the median expected increase was just 0.9 percent, less than the expected rate of inflation
," survey director Richard Curtin said in a statement.
The survey results indicated that the expected rate of inflation
would remain around 13 per cent during the current financial year.
Darby's (1975) study suggested that nominal rate, unadjusted for taxes, should change by 1.3 to 1.5 times the change in the expected rate of inflation
, a sort of 'augmented Fisher effect'.