Line chart showing U.S. breakeven inflations rates as of March 25, 2022, November 30, 2023, and December 31, 2023. Shorter-term breakeven rates have come down from their elevated level in March 2022.
This line chart shows the three-month moving average of the year-over-year change in the Atlanta Fed’s sticky-price consumer price index and flexible-price consumer price index from 1968 to November 2023. Sticky CPI rose sharply in the 1980s, peaking at 14.7% in June 1980. While sticky CPI has risen since 2021, it has not reached 1980 levels. Sticky inflation may have peaked in February 2023 at 6.7%. It ended November 2023 at 4.9%. Flexible CPI peaked at 16.3% in March 1980 and has risen above those levels, peaking in March 2022 at 18.6%. It ended November 2023 at 0.1%.
Sources: Top chart: Bloomberg, U.S. Treasury Department, and Wells Fargo Investment Institute, as of December 31, 2023. Bottom chart: Bloomberg, Federal Reserve Bank of Atlanta, U.S. Department of Labor, and Wells Fargo Investment Institute. Sticky-price and flexible-price consumer price index: monthly data from January 1, 1968 to November 30, 2023. Breakeven inflation rates equate nominal, or observed, Treasury interest rates with their inflation-protected counterparts. Fed = Federal Reserve. CPI = consumer price inflation. Sticky inflation is measured by components that change pricing less frequently, such as rents, education and public transportations. Flexible inflation is measured by components that change pricing more frequently, such as car rental, gas and electricity.
Key Takeaways
- Shorter-term inflation expectations have come down noticeably from early 2022, responding to moderating wage pressures in labor-intensive services industries and to improving global supply chains. Traditionally “stickier” services inflation within the CPI has been slower to decline, buoyed by still-elevated rent increases and strong demand for other services.
- Longer-term inflation expectations remain subdued by comparison, which indicates that investors and households view recent price increases largely as the product of shocks likely to dissipate in coming months.