The Increase in Inflation Compensation: What’s Up?

Christensen, Jens H. E.

Journal Article

The Increase in Inflation Compensation: What’s Up?

Abstract: Supply and demand imbalances associated with the COVID-19 pandemic have contributed to a sharp increase in price inflation since early 2021. In response, market-based measures of short-term inflation compensation have risen sharply in the United States. Survey-based measures suggest that this has not affected longer-term inflation expectations. However, analyzing the difference between market prices of standard and inflation-indexed government bonds provides tentative indications that investors have raised their 10-year inflation expectations since spring 2021 to levels above their historical range.

Keywords: covid19; inflation; inflation expectations; short-term inflation compensation; long-term inflation expectations;