How to measure inflation expectations
Central banks treat inflation expectations as the single most important variable in monetary policy — because expectations are self-fulfilling: if people expect 5% inflation, they demand 5% pay rises, which creates 5% inflation. This guide covers the four main ways expectations are measured: surveys, breakeven rates, inflation swaps, and central bank forecasts.
Milton Friedman famously argued that inflation is "always and everywhere a monetary phenomenon." Modern central banking takes a different view: inflation is substantially an expectations phenomenon. If households and businesses expect 2% inflation, they behave in ways that produce 2% inflation — pricing products at cost-plus-2%, demanding 2–3% pay rises, setting long-term contracts in nominal terms that imply 2% price growth. This is "well-anchored" expectations, and maintaining it is the primary job of monetary policy.
When expectations de-anchor — as they began to in 2021–22 — the self-fulfilling dynamic works in reverse: higher expected inflation generates higher wage demands, higher price-setting, and therefore higher actual inflation. This is why central banks watch expectations data obsessively. Knowing how to read this data is essential for understanding monetary policy decisions.
Read the University of Michigan Consumer Survey
The University of Michigan Survey of Consumers publishes two inflation expectations measures monthly: 1-year ahead and 5–10 year ahead. The 1-year measure is volatile and tracks actual recent inflation closely (people expect more of what they've recently experienced). The 5–10 year measure is the one the Fed watches — it is an estimate of where consumers think inflation will be in the longer run, and is less anchored to recent experience.
A 5–10 year Michigan expectation consistently above 3% would signal de-anchoring — households no longer believe the Fed's 2% commitment. During the 2021–22 inflation surge, the 5–10 year measure rose from ~2.6% to ~3.1% — slightly elevated but not alarmingly de-anchored. By October 2026 it is back to ~2.8%, consistent with gradual re-anchoring. The Fed's FOMC statement routinely includes a sentence on long-run inflation expectations specifically because of this measure.
Use the Survey of Professional Forecasters
The Philadelphia Fed's Survey of Professional Forecasters (SPF) polls roughly 40 professional economic forecasters quarterly on their PCE and CPI inflation expectations over 1, 2, and 10 years ahead. The SPF is considered more analytically sophisticated than consumer surveys because forecasters have models and incentives to be accurate.
The SPF 10-year PCE forecast has been remarkably stable since 1997: it has rarely deviated from 2.0–2.3%, suggesting professional forecasters maintained confidence in the Fed's target even during the 2021–23 inflation surge. This stability is reassuring — it means the professional consensus did not de-anchor, even when headline inflation hit 9%. The ECB publishes a Survey of Professional Forecasters quarterly for the euro area, with similar methodology and stability properties.
Understand TIPS breakeven rates
Treasury Inflation-Protected Securities (TIPS) are US Treasury bonds where the principal adjusts with CPI. The breakeven inflation rate is the difference between a nominal Treasury yield and the equivalent-maturity TIPS yield: if the 10-year Treasury yields 4.5% and the 10-year TIPS yields 2.1%, the breakeven is 2.4% — the market's implied average CPI over the next 10 years.
Breakevens are available in real time on the FRED database (T10YIE) and the Federal Reserve H.15 release. The "5-year/5-year forward breakeven" — the market's expectation for inflation from year 5 to year 10 — is particularly watched as a long-run anchoring indicator, since it strips out near-term inflation noise. As of October 2026, the 5y/5y forward stands at ~2.3% — slightly above the 2% target but within the range consistent with anchored expectations.
Compare to inflation swaps
Inflation swaps are over-the-counter derivatives where one party pays a fixed "inflation rate" in exchange for receiving the actual realised CPI. The fixed rate is the market's expectation of future inflation, similar to a breakeven rate but without the liquidity and risk premium effects that can distort TIPS breakevens. The 5-year US inflation swap rate is available on FRED; Bloomberg and Refinitiv publish real-time data. ECB-focused analysts watch the 5-year euro area inflation swap rate — currently around 2.1% — as the market's assessment of euro area medium-term inflation.
Inflation swaps and TIPS breakevens tend to move together but can diverge due to liquidity differences. In periods of market stress, TIPS can trade at a premium to fair value (flight to safety), pushing breakevens artificially low. Swaps are less affected by this. Comparing the two gives a sense of whether any gap between them reflects genuine expectation shifts or technical market dynamics.
Read central bank projections for official expectations
Central bank inflation projections — the Fed's SEP, the ECB's Staff Macroeconomic Projections, the BoE's Monetary Policy Report fan charts — represent the official view on where inflation is heading. They are conditional forecasts (based on a set of assumptions, typically market-implied interest rates) rather than unconditional predictions. The key feature: central banks project inflation returning to 2% over a 2-3 year horizon. If their projection shows inflation above target beyond the 3-year window, this implies they believe policy is not yet restrictive enough — and further hikes are likely.
The inflation fan chart in the BoE's MPR is the most visual representation of uncertainty in central bank projections — see our guide to reading the BoE MPR for how to interpret it. For the Fed, the SEP median dots give the direction, but the distribution of dots gives the uncertainty. For the ECB, the staff projections table gives the 1-, 2-, and 3-year ahead HICP forecasts alongside confidence intervals.