The recent conflict involving Iran has brought inflation concerns back into public focus, with online interest in the topic nearly doubling compared to last year. Current inflationary pressures in many economies are largely attributed to rising energy costs filtering through supply chains and the residual impact of US tariffs.

Traditionally, central bankers have maintained a detached stance toward inflation expectations, treating them as factors largely outside their control. However, policymakers today are increasingly concerned about the rise in these expectations, some of whom appear to regard them as key policy targets. This approach may overlook important changes in how inflation expectations are formed and their actual economic significance in the current environment.

Inflation expectations are often gauged through consumer and corporate surveys, but these measurements may be losing reliability. Social media platforms have transformed how individuals perceive and report economic outlooks, frequently amplifying fears and pessimism. For instance, in the May 2025 Michigan consumer survey, nearly 29 percent of respondents anticipated inflation exceeding 15 percent within a year, despite actual inflation being measured at 2.4 percent. Such elevated expectations have only previously been recorded during the high-inflation period of 1980.

The proliferation of social media creates echo chambers where inflation fears can be reinforced by frequent complaints from influencers, often accompanied by heightened political partisanship. This dynamic risks making survey responses more theatrical rather than reflective of genuine economic sentiment. Consequently, those completing business sentiment surveys may be more influenced by social media narratives than by their companies’ fundamental strategies.

Experts warn that policymakers who do not account for this shift might overemphasize the implications of these heightened survey-based inflation expectations. For expectations to matter in economic terms, they must influence behavior, such as wage negotiations or consumer purchasing patterns. Currently, wage growth remains modest, with real wages in the US declining when adjusted for inflation expectations, and there is little indication of a wage-price spiral.

While theoretically, elevated expectations could prompt consumers to accelerate purchases to avoid future price increases, evidence of such frontloading remains limited. Consumers appear to express frustration but largely maintain consistent spending habits. On the corporate side, inflation expectations would be significant if firms with pricing power raised prices preemptively to outpace inflation, potentially triggering a second-round inflationary effect. However, there is no indication that this is occurring in major economies, where price increases mostly reflect immediate cost pass-through.

The group most capable of translating inflation expectations into economic action are bond investors. Rising inflation expectations among this group tend to increase nominal borrowing costs, and more worryingly, real borrowing costs may also rise if investors demand a risk premium for inflation uncertainty. This development could constrain fiscal policy and private investment, ultimately dampening economic growth.

The prevailing analysis suggests social media is distorting survey data on inflation expectations, making them less reliable indicators for policymakers in regard to consumers and companies. Nonetheless, the expectations of bond market participants remain a critical factor to monitor, as they hold the leverage to influence financial conditions and economic outcomes. For now, these market actors, sometimes referred to as "bond vigilantes," are the central group whose inflation outlooks carry meaningful weight for policy decisions.