What should we make of the volatility of breakeven inflation over recent years? One interpretation is that inflation expectations are not as well anchored as policymakers would like (see Bernanke, 2004, for additional evidence on this point).
The fact that inflation compensation tends to react strongly both to releases of macroeconomic data and to unexpected changes in monetary policy (Gurkaynak, Sack, and Swanson, 2003) supports this interpretation. Still, at this point I think we need to be cautious about drawing strong conclusions about the short-run behavior of expected inflation from the data on breakeven inflation.