Inflation Expectations

From Open Risk Manual


Inflation Expectations are at any given point in time the explicit or implicit Expected realisations of Inflation for any set of agents participating in an economy with a given monetary system.


  • From asset prices (market derived)
  • From surveys

Fisher Identity

The Fisher Identity links current or implied forward inflation rates as a measure of inflation to nominal and real interest rates. It forms the conceptual basis for extracting inflation expectations from asset prices (using comparable fixed-income instruments that are promising nominal and indexed cash flows respectively).

(1 + Nominal Rate) = (1 + Real Rate) (1 + Inflation Expectation)

Issues and Challenges

  • Extracting inflation expectations from asset prices may be skewed by other market related factors and risk premia that may be hard to isolate
  • Inflation Expectations are not obviously linked with Inflation realizations.[1]


  1. Rudd, Jeremy B. (2021). “Why Do We Think That Inflation Expectations Mat- ter for Inflation? (And Should We?),” Finance and Economics Discussion Series 2021-062. Washington: Board of Governors of the Federal Reserve System