Expectations of Inflation This animation illustrates one of the three common ways that people plan for next year's inflation. It opens with just the balloon for Year 1's Expected Inflation (3.7%). The balloon representing Year 1's Actual Inflation (5%) appears, then a clone of it travels up to the spot for Year 2's Expected Inflation. Year 2's Actual Inflation appears, a clone of that balloon travels up, and the cycle repeats. As the animation runs, the voice-over says: "A simple way to plan for inflation is just to assume that next year's inflation will be the same as this year's This approach is called adaptive expectations. You won't always be right. But, as long as inflation shifts are modest, you won't be too far wrong either."
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