Business leaders and consumers alike are optimistic about the future of inflation, with top executives expecting the rate of increase in prices to taper to an average of 3.4% using the consumer-price index (CPI) in the next 12 months. The good news is that the CPI is already there, with the rate of inflation in the 12 months that ended in December at 3.4%, and it’s expected to drop to 2.9% in the January report due out Tuesday morning. However, a better measure of future inflation was somewhat higher, with the core CPI, which omits food and energy, standing at a 12-month rate of 3.9% at the end of 2023.
A long-running survey of consumers also found that Americans expect inflation to continue to decelerate toward prepandemic levels, with households expecting 2.9% inflation in the next year based on their consumer sentiment survey. Both surveys show that inflation expectations are well anchored, meaning nobody expects much movement from current levels.
The Federal Reserve wants inflation to return to its target of 2% a year and is counting on both consumers and businesses sharing this goal. Inflation expectations feed on themselves, so if everyone thinks it will happen, it’s more likely to happen. While we still don’t know what will happen next year or beyond, these signs point towards a hopeful future for American households and businesses alike.