What are the results of the University of Michigan survey?
figure 1: Annual increase in CPI inflation (black), median expectations from the Professional Forecasters Survey (blue +), median expectations from the Michigan Consumer Survey (red), median expectations from the New York Fed Consumer Expectations Survey (light green), Cleveland’s projected Fed (pink), all expressed as percentages. NBER-defined recession peak-to-trough dates appear gray.Source: BLS, University of Michigan, via FRED and Investment Network, Philadelphia Fed Survey of Professional Forecasters, Fed, Federal Reserve Bank of Cleveland and the National Bureau of Economic Research.
Typically, the New York Fed and University of Michigan investigations track each other nearly as closely (see Discussion here), while economists’ forecasts and mixed survey/financial market data measures track each other and diverge from household/consumer expectations. What’s unusual is that Michigan has deviated from the New York Fed’s measures in recent months.
figure 2: Median 1-year inflation expectations from the Michigan Consumer Survey (red), minus the median 1-year inflation expectations from the New York Fed Consumer Expectations Survey (light green), as of the dates shown, both in percentages. NBER-defined recession peak-to-trough dates appear gray.Source: BLS, University of Michigan, via FRED and Investment Network, FedNBER, and author’s calculations.
Now, it may be the New York Fed’s actions that deviate, not the University of Michigan’s. One way to answer the question of which bias is which is to regress each measure of real CPI inflation to see where there are structural breaks. I use the 1-step ahead Chow test to determine interruptions. First up is the Federal Reserve Bank of New York:
Now a survey from the University of Michigan shows:
The New York Fed Series/Real relationship shows a discontinuity associated with the inflation spike, becoming significant around April 2021. The Michigan series took a significant break around February 2021. However, while there were no further disruptions in the New York Fed series, there was a significant disruption in the Michigan series around February 2021. April 2023 and again in September 2023.
