improving the measurement of inflation expectations · improving the measurement of inflation...

Improving the Measurement of Inflation ExpectationsCharts for Barclays 16th Global Inflation-Linked ConferenceCharts for Barclays 16 Global Inflation-Linked Conference

New YorkSimon PotterE ti Vi P id t d Di t f E i R h

June 6, 2012

Executive Vice President and Director of Economic ResearchFederal Reserve Bank of New York

Chart 1: Measures of Forward Inflation Compensation

B l C it l 5 /5 B k F d FRB 5 /5 B k F dBarclays Capital: 5-year/5-year Breakeven Forward

2 0

2.5

3.0

2 0

2.5

3.0Percent Percent

75th Percentile

25th Percentile

FRB: 5-year/5-year Breakeven Forward

3.5

4.0

3.5

4.0Percent Percent

Jun 4:2.56

0 5

1.0

1.5

2.0

0 5

1.0

1.5

2.0

Jun 4: 2.49

2.0

2.5

3.0

2.0

2.5

3.075th Percentile

25th Percentile

Source: Barclays

0.0

0.5

2006 2007 2008 2009 2010 2011 20120.0

0.5Jackson Hole

Source: Federal Reserve Board of Governors

1.52006 2007 2008 2009 2010 2011 2012

1.5

Jackson Hole

FRBNY: 5 year/5 year Breakeven Forward 5 year/5 year Zero Coupon Inflation SwapFRBNY: 5-year/5-year Breakeven Forward

3.5

4.0

3.5

4.0Percent Percent

Jun 4:2.72

5-year/5-year Zero Coupon Inflation Swap

3.5

4.0

3.5

4.0Percent Percent

75th Percentile

Jun 4:2.82

2.0

2.5

3.0

2.0

2.5

3.075th Percentile

25th Percentile

2.0

2.5

3.0

2.0

2.5

3.0

Jackson Hole

25th Percentile

2Source: Federal Reserve Bank of New York

1.52006 2007 2008 2009 2010 2011 2012

1.5

Jackson Hole

Source: Bloomberg

1.52006 2007 2008 2009 2010 2011 2012

1.5

Jackson Hole

Basis Points Basis Points

Chart 2: Changes in 1-Year Forward Inflation Compensation

25 25

Basis Points Basis Points

-25

0

-25

0

75

-50

75

-50

-100

-75

-100

-75

150

-125

150

-125

3

-1500 1 2 3 4

-150

Source: Federal Reserve Board Note: Changes since 4/16/2012.Years Ahead

Chart 3: SPF Inflation ForecastsM f C PCE (Q4/Q4) I fl ti F t U t i t i C PCE (Q4/Q4) I fl ti F t

2.0

2.5

2.0

2.5

Mean of Core PCE (Q4/Q4) Inflation Forecasts

Current Year

Percent Percent

(13Q4/12Q4) 2012Q1 0.5

0.6

0.5

0.6

Uncertainty in Core PCE (Q4/Q4) Inflation ForecastsQ1 Survey

One-Year-Ahead

Percent Percent

0.5

1.0

1.5

0.5

1.0

1.5One-Year-Ahead

(12Q4/11Q4) 2012Q1 0.1

0.2

0.3

0.4

0.1

0.2

0.3

0.4Current Year

0.02007 2008 2009 2010 2011 2012

0.0

Source: Survey of Professional ForecastersNote: The dates represent the

survey release.

2012Q1

02007 2008 2009 2010 2011 2012

0


survey release.

0.6

0.7

0.8

0.6

0.7

0.8

Disagreement in Core PCE (Q4/Q4) Inflation Forecasts Q1 Survey

One-Year-Ahead

Percent Percent

1.0

1.2

1.0

1.2

Disagreement in Long-run Inflation ExpectationsPercent Percent

0.2

0.3

0.4

0.5

0.2

0.3

0.4

0.5

Current Year

0.4

0.6

0.8

0.4

0.6

0.810-Year Headline CPI

4

0

0.1

2007 2008 2009 2010 2011 20120

0.1


survey release.

0.21992 1996 2000 2004 2008 2012

0.2


survey release.

Chart 4: Business expectations for unit costs

Di ib i f R d E i f U i C

40

Distribution of Respondent Expectations for Unit Costsprobability of cost change, percent

12 months ahead

30

3512 months ahead

Five to 10 years ahead

20

25

10

15

0

5

5

< ‐1% ‐1% to 1% 1% to 3% 3% to 5% > 5%

Source: Atlanta Fed

Note: The survey reflects responses of Sixth District firms to Survey of Business Inflation Expectations (BIE) between April 16-21, 2012.

Chart 5: Prices in General and Rate of Inflation Median Year-Ahead Forecasts

Percent PercentPercent Percent

10

12

10

12

Prices in General

8

10

8

10Prices in General

4

6

4

6

0

2

0

2

Rate of Inflation

-2Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

-2

6

Note: 25th, 50th, and 75th percentiles of the point forecasts of year-ahead changes in ‘prices in general’ and the year-ahead ‘rate of inflation’.

Source: NYFed-ALP Panel

07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12

Chart 6: Year-Ahead Commodity Price Inflation Expectations


10

12

10

12

Medical CostsGas

8

10

8

10Medical Costs

6 6

2

4

2

4Food

0

2

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-120

2Housing Costs

7Note: Medians of point forecasts across all respondents.


Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12

Chart 7: Michigan SurveyTrends in 1-year and 5-10-year Expectations

6 6

1 Year

Percent Percent

4

5

4

51 Year

3 3

5-10 Year

1

2

1

2

0Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

0

8Note: Michigan Survey micro data. Median of point forecasts from ‘prices in general’ question.

Source: Reuters/Michigan Survey of Consumers

07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12

Chart 8: Structure of Michigan’s Long-Term InflationExpectations Question

What about the outlook for prices over theWhat about the outlook for prices over the next 5 to 10 years? Do you think prices in

general will be higher, about the same, or lower, 5 to 10 years from now?

Lower Higher

By about what percent per year do you expect prices to go down, on average,

during the next 5 to 10 years?

By about what percent per year do you expect prices

to go up, on average, during the next 5 to 10 years?

Same

Do you mean that prices will go up at the same rate

as now or that prices in l ill t

Greater than 5% Greater than 5%

general will not go up during the next 5 to 10 years?

Will t

No Yes Yes No

Will not go up Will go up at same rate

Would that be [x%] per year, or is that the total for prices over the next 5 to 10 years?

Would that be [x%] per year, or is that the total for prices over the next 5 to 10 years?About what percent per About what percent per

9

y y

Per year Per yearTotal Total

About what percent per year would that be?

About what percent per year would that be?

Chart 9: Medium-term Inflation: Probabilistic Question

[After Instructions]:

Now we would like you to think of inflation 3 years from nowNow we would like you to think of inflation 3 years from now. In your view, what would you say is the percent chance that the following things may happen over the one-year period between May 2014 and May 2015?

(Please note: Numbers need to add up to 100%.)

The rate of:The rate of:inflation will be 12% or higher _____ percent chanceinflation will be between 8% and 12% _____ percent chanceInflation will be between 4% and 8% _____ percent chanceI fl ti ill b b t 2% d 4% t hInflation will be between 2% and 4% _____ percent chanceInflation will be between 0% and 2% _____ percent chanceDeflation will be between 0% and 2% _____ percent chanceDeflation will be between 2% and 4% percent chance

10

_____ pDeflation will be 4% or higher _____ percent chance

100 % total

Chart 10: Three-Year Ahead Inflation Expectations Percent PercentPercent Percent

5

6

5

6

Median Forecast

4

5

4

5

Disagreement

Median Forecast

3 3

2 2

Uncertainty

1Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

1

11

Note: Median and inter-quartile range (75th – 25th percentile) of interpolated individual density medians for three-year-ahead ‘rate of inflation’. Uncertainty measured as sample median of individual density IQRs for three-year-ahead ‘rate of inflation’.


Chart 11: Trends in Medians of Individual Quartiles of 1Y and 3Y Ahead Forecasts of Rate of Inflation


10

11

12

10

11

12

7

8

9

10

7

8

9

10

1-Year Ahead Rate of 3-Year Ahead

4

5

6

7

4

5

6

7Inflation Rate of Inflation

2

3

4

2

3

4

0

1

May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

Feb-11

May-11

Aug-11

Nov-11

Feb-12

May-12

0

1

12

Note: Medians of quartiles from individual density forecasts for ‘rate of inflation’, one year and three years in the future. Subsample consists of respondents who answer both 1Y and 3Y ahead RI density questions.


Chart 12: Year-Ahead House Price Expectations Quartiles by Income Groups


8

10

12

8

10

12

Income > $75K

2

4

6

8

2

4

6

8Income > $75K

-4

-2

0

2

-4

-2

0

2

10

-8

-6

-4

10

-8

-6

-4

Income < $75K

-12

-10

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

-12

-10

13

Note: 25th, 50th, and 75th percentiles of the distribution of point forecasts of change in year-ahead ‘average home price’, by income groups.


Chart 13: Year-Ahead Wage Growth ExpectationsQuartiles by Income


7

8

7

8

5

6

5

6

Income <$75K

2

3

4

2

3

4

0

1

2

0

1

2

Income>$75K

-2

-1

Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun--2

-1

14Note: 25th, 50th, and 75th percentiles of the density medians of change in year-ahead ‘wages’.


Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Chart 14: Year-Ahead Real Wage ExpectationsQuartiles Across Respondents


2

3

2

3

0

1

0

1

-2

-1

-2

-1

-4

-3

-4

-3

-6

-5

May- Aug- Nov- Feb- May- Aug- Nov- Feb- May- Aug- Nov- Feb- May- Aug- Nov- Feb- May--6

-5

15Note: 25th, 50th, and 75th percentiles.


May08

Aug08

Nov08

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Nov11

Feb12

May12

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