It highlights that the choice of the measure of inflation expectations is crucial in understanding inflation dynamics in the United States, advocating the use of surveys of household inflation expectations rather than those of professional forecasters. Naturally, expectations from surveys or professional forecasters are not microfounded. More generally, NKPC has had many problems to predict inflation even when embedded in a DSGE model.
The extent of the narrowing, however, is hard to estimate because firms tend to start new investment related to technological innovation before capacity utilization becomes too high. Although the rise in commodity prices at home and abroad has started to influence the prices of raw materials and intermediate goods, its impact on the prices of finished goods is likely to be rather limited.