Do consumer inflation expectations surveys change your view of the dollar?
Two US surveys of inflation expectations came out in the last week. The New York Fed's Survey of Consumer Expectations for August showed median expectations unchanged at 3.6% one year ahead, down 0.1 percentage point to 3.2% three years ahead and unchanged at 3.0% five years ahead (report). The University of Michigan's preliminary September survey put year-ahead expectations at 4.6% (report).
The two surveys ask different questions of different samples, which is one reason their numbers don't match.
We'd like to hear:
- whether you follow either survey, and which one you find more useful
- whether expectations data has ever changed a trade you were planning before a Fed decision
- how you weigh surveys against hard data such as the CPI report
Background: CPI explained: headline and core inflation for forex traders
The consumer price index is the inflation figure markets watch most closely. What it measures, why core CPI matters and how it links to interest rates.
What is the difference between headline and core CPI?
Headline CPI includes all items in the basket. Core CPI excludes food and energy, whose prices are volatile, to show the underlying trend in inflation.
What time is US CPI released?
At 8:30 a.m. New York time, usually around the middle of the month, by the Bureau of Labor Statistics.
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One point that helps when reading these two surveys side by side: they measure different things.
- The New York Fed's Survey of Consumer Expectations asks a rotating panel and reports the median answer. In August, one-year expectations were 3.6%, three-year 3.2% and five-year 3.0% (report).
- The University of Michigan survey reports year-ahead expectations from its own sample. The preliminary September figure was 4.6% (report).
A gap of a point between them isn't unusual. What traders tend to watch is the direction of each over several months, and especially the longer-horizon figures. Central banks care most about whether expectations stay anchored, because rising long-term expectations can make inflation harder to bring down.
That matters for the dollar mainly through what it implies for the Fed. After the Fed's increase on 16 September, do members give these surveys more weight than before?
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