Inflation Expectations
Expectation becomes behaviour
Inflation expectations are what households, firms and investors believe prices will do over the next year and beyond. They matter because they are acted on. A worker who expects 6% inflation asks for a wage that holds real pay; a firm that expects higher input costs raises prices in advance. The belief becomes the behaviour, and the behaviour becomes price pressure.
That feedback is why the concept sits at the centre of policy. Once expectations settle above target, tight policy has to fight not only today's prices but the anticipation of tomorrow's, which is a much larger job than leaning against a single shock.
Two families of measures
Market-implied measures are read from prices. Compare a plain government bond yield with the yield on an inflation-linked bond of the same maturity; the difference, the breakeven, is roughly what the market charges for expected inflation over that horizon. Surveys ask people and firms directly. Neither is a promise: the breakeven carries a risk premium, and a survey records what respondents say, which is not always what they do.
Why it outranks the last print
The last print is a fact about the past; expectations are the part of the process that has not happened yet and can still be influenced. A single hot month can be a one-off. Beliefs that shift upward rarely shift back on their own. Credibility means exactly this: expectations staying anchored to the target even while the current number runs away from it.
Do not read either measure as a forecast to bet on. The checkable use is to compare the market measure and the survey measure for the same horizon and look for disagreement. A persistent gap means one of them is missing something, and the gap itself is the signal.
Related: Base Effect · Disinflation · Core Inflation
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