How inflation expectations affect the economy

The Indicator from Planet Money

NPR

Business

4.7 • 9.2K Ratings

🗓️ 14 December 2022

⏱️ 10 minutes

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Summary

Consumers' and businesses' inflation expectations usually stay safely anchored at the Fed's two percent target. But recently, that anchor has been slipping. It's one of the reasons inflation has risen.

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Transcript

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0:00.0	NPR
0:05.0	Ahoi there!
0:15.7	Welcome aboard the good ship inflation.
0:18.6	Here we sail the economy's treacherous seas, but always expect a return to anchor, around
0:24.8	2%.
0:26.1	At least we used to.
0:28.8	For months we've been drifting farther and farther from our usual waters and a fear
0:33.9	it's taken a toll on me crew.
0:35.8	For the moons just can't buy what it used to.
0:38.1	I had to sell me good lights and pay for my pay.
0:41.7	First mate, I captain.
0:43.7	Tell the people what we've been through.
0:46.2	I captain, listen up lads.
0:51.2	There once was a price for a can of beans, the refripe fine cost, $1.19.
0:56.2	And inflation came for me in the price of beans it rose.
1:00.3	So I went to work and I asked for a raise, and the company groaned and said okay.
1:05.5	Then it started to re-apprise the price of all it sold.
1:09.7	Then the inflation rose, it grew the cost of sugar and toast.
1:15.1	One day the price may slow, but we don't expect that so.
1:19.7	When inflation was anchored at 2%, the effect on gas and food and rent was not so bad.
1:25.7	But oh my friends, that was so long ago.
1:29.5	Unencured expectations, driving more inflation with prices rising higher and higher.
	...

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