Econ 101: Inflation Expectations

Econ 101: Inflation Expectations

EconSouth

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March 22, 2012 | Copyright

Inflation expectations are a critical component of the inflation outlook and, ultimately, they play a role in achieving price stability. But our understanding of inflation expectations is limited, in part as a consequence of imperfect measurement.

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Simply said, inflation expectations are the rate at which individu als, businesses, and investors think the general prices of goods and services will rise. Businesses' and individuals' expectations of inflation affect every decision they make about spending and investing. The price a firm sets for its goods or services, an individu al's decision to purchase a new car or home and the wage they demand from employers, how much businesses and individuals put into savings--inflation expectations affect all of them. …

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