An error in inflation forecasting?

Are skyrocketing UMICH inflation expectations politically driven?

The U.S. Bureau of Labor Statistics published the May inflation figures today. Here are the reported changes in the main indices.

The Consumer Price Index (all items, all urban consumers, U.S. city average, seasonally adjusted), or CPI, rose at a 2.4% annualized rate in May vs. 2.3% in April. The core inflation, deducting food and energy prices from the CPI, rose by 2.8% vs. 2.8% in April, and the “super-core,” i.e., services less energy costs, rose by 3.6% vs. 3.6% in May.

The month-over-month changes were

• CPI: 0.1% vs. 0.2% in April.

• Core inflation: 0.1% vs. 0.2% in April.

• Super-core: 0.2% vs. 0.3% in April.

Just yesterday, I sent a voice message to our partner-analyst stating that “We need to acknowledge the possibility that the UMICH inflation expectations are politically driven.” This would mean that our inflation forecasts are biased.” Our last month’s inflation forecasts erred quite massively on the upside, driven by the massive surge in one-year inflation expectations surveyed by the University of Michigan. Is this a measurement error, or is there a systematic bias (motivation) behind it?