MONETARY POLICY REPORT: FEBRUARY 2018 13 been restrained by softness in the prices of farm commodities, which in turn has reflected robust supply in the United States and abroad Although the harvests for many crops in the United States declined in 2017, they were larger than had been expected earlier in the year Survey-based measures of inflation expectations have been generally stable Expectations of inflation likely influence actual nflation by affecting wage-and price-setting decisions. Survey-based measures of inflation expectations at medium- and longer-term 10. Median inflation expectations horizons have remained generally stable. In the Survey of Professional Forecasters conducted by the Federal Reserve Bank of Philadelphia the median expectation for the annual rate of Michigan survey expectations for next 5 to 10 years increase in the PCe price index over the next 10 years has been around 2 percent for the past several years(figure 10). In the University of Michigan Surveys of Consumers, the median value for inflation expectations over the next for next 10 years 5 to 10 years-which had drifted downward starting in 2014--has held about flat since the end of 2016 at a level that is a few tenths lower than had prevailed through 2014 NOTE: The Michigan survey data are monthly and extend through February, the February data are preliminary. The SPF data for inflation and market-based measures of expectations for personal consumption expenditures are quarterly and extend nflation compensation have increased in SOURCE: University of Michigan Surveys of Consumers: Federal Reserve Bank of Philadelphia. Survey of Professional Forecasters (SPF) recent months but remain relatively low Inflation expectations can also be gauged by market-based measures of inflation compensation, though the inference is not straightforward because market-based measures can be importantly affected by changes in premiums that provide compensation for bearing inflation and liquidity risks. Measures of longer-term inflation compensation-derived either from differences between yields on nominal Treasury securities and those on comparable Treasury Inflation-Protected Securities(TIPS)or from inflation swaps-have increased since June returning to levels seen in early 2017, butMONETARY POLICY REPORT: FEBRUARY 2018 13 been restrained by softness in the prices of farm commodities, which in turn has reflected robust supply in the United States and abroad. Although the harvests for many crops in the United States declined in 2017, they were larger than had been expected earlier in the year. Survey-based measures of inflation expectations have been generally stable... Expectations of inflation likely influence actual inflation by affecting wage- and price-setting decisions. Survey-based measures of inflation expectations at medium- and longer-term horizons have remained generally stable. In the Survey of Professional Forecasters conducted by the Federal Reserve Bank of Philadelphia, the median expectation for the annual rate of increase in the PCE price index over the next 10 years has been around 2 percent for the past several years (figure 10). In the University of Michigan Surveys of Consumers, the median value for inflation expectations over the next 5 to 10 years—which had drifted downward starting in 2014—has held about flat since the end of 2016 at a level that is a few tenths lower than had prevailed through 2014. . . . and market-based measures of inflation compensation have increased in recent months but remain relatively low Inflation expectations can also be gauged by market-based measures of inflation compensation, though the inference is not straightforward because market-based measures can be importantly affected by changes in premiums that provide compensation for bearing inflation and liquidity risks. Measures of longer-term inflation compensation—derived either from differences between yields on nominal Treasury securities and those on comparable Treasury Inflation-Protected Securities (TIPS) or from inflation swaps—have increased since June, returning to levels seen in early 2017, but Michigan survey expectations for next 5 to 10 years 1 2 3 4 Percent 2006 2008 2010 2012 2014 2016 2018 SPF expectations for next 10 years 10. Median inflation expectations NOTE: The Michigan survey data are monthly and extend through February; the February data are preliminary. The SPF data for inflation expectations for personal consumption expenditures are quarterly and extend from 2007:Q1 through 2018:Q1. SOURCE: University of Michigan Surveys of Consumers; Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters (SPF)