150 years of U.S. inflation expectations

We develop two long-run monthly proxies for inflation expectations in the United States: a market-based measure derived from commodity prices from 1877-2020, and a narrative intensity measure based on the text of all New York Times articles from 1870-2020. The market-based measure, despite having been influential in extant literature, is found to be largely unrelated to subsequent inflation. However, the narrative intensity measure is a strong and consistent predictor of future inflation. For the period of overlap with the Michigan Survey of Consumers, its correlation with survey-based inflation expectations is 0.74. We then use this measure to provide new evidence on debates surrounding historical inflations and deflations. Our most notable result is that, contrary to the current consensus, the deflation of 1930-33 became anticipated relatively early. An unsupervised article-level topic analysis over the 150-year sample documents a shift from inflation narratives based on commodities, currency, and market quotations to narratives based on energy, central banks, and monetary policy. Finally, we find that unexpectedly hawkish monetary policy predicts an increase in inflationary narrative intensity, but that this relationship is driven entirely by the element of monetary surprises that is a linear function of macroeconomic conditions.