The Surprising Stability Between Gas Prices and Expected Inflation

We examine the correlation between nominal gas prices and consumer inflation expectations. Using data from the mid-1980s through the present, we do not find evidence that the relationship is time varying. Instead, our results suggest that the correlation between gas prices and inflation expectations is stable at approximately 0.30. Our results contribute to the vast literature regarding energy prices and the expectations augmented Phillips curve. We find very little evidence that the changing relationship between energy prices and inflation expectations has had any impact on the Phillip's curve or the missing inflation after the recession in 2008.