expected inflation

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The rate of inflation that people expect; this may be different for different time horizons. Expected inflation cannot be directly observed, except by surveys in which people are asked to state their expectations. It can be inferred, for example, from the difference between the prices of index-linked and non-indexed government securities with the same maturity dates. The greater the expected rate of inflation, the greater the excess of the prices of indexed securities over those of comparable non-indexed ones.

Subjects: Economics.

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