The University of Michigan Inflation Expectation survey shows that longer-term U.S. inflation
expectations appear sensitive to recent average headline CPI inflation – suggesting that persistently low inflation increases the risk that inflation
expectations can become de-anchored to the downside, creating a self-sustaining cycle of declining inflation.
However, recent dollar appreciation and commodity price declines have depressed core and headline inflation and have contributed to the decline in
longer-term inflation expectations. As these effects fade, the expected rise in headline CPI inflation from about 1.5% currently to above 2% by the end of
2017 should bring up average inflation and support future inflation expectations, as shown in the chart.
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