Recent data indicate that the traditional link between gasoline prices and household inflation expectations weakened significantly in 2025, reversing a pattern observed over several decades. Historically, gasoline prices have served as a key reference for consumers when assessing overall price trends, with higher pump prices often coinciding with increased short-term inflation expectations.
According to research from the Federal Reserve Bank of Kansas City, the correlation between average gasoline prices and one-year-ahead inflation expectations was particularly strong during the decade following the Great Recession, reaching close to 0.8 from 2015 to 2024. During this period, changes in gasoline prices closely matched shifts in what households expected for future inflation.
However, this relationship broke down in 2025. The correlation turned negative as inflation expectations rose despite a decline in gasoline prices. At the end of 2025, gasoline prices were about ten cents lower than at the start of the year. If historical patterns had held, one-year-ahead inflation expectations would have been expected to decrease by approximately 0.03 percentage points.
Instead, actual inflation expectations increased and remained elevated throughout the year. On average across each month in 2025, these expectations were about 1.5 percentage points higher than what historical models would predict based on gas price movements alone.
Survey responses suggest that concerns about trade policy and tariffs played a significant role in shaping consumer views on future inflation during this period. Respondents to the University of Michigan’s Surveys of Consumers specifically mentioned tariffs and broader trade issues as reasons for expecting higher inflation even as energy costs fell. The June 2025 release from the survey noted: “while tariff fears had softened somewhat, expectations remained elevated relative to late 2024, with tariffs continuing to be viewed as an upside risk to inflation” (University of Michigan 2025).
Unlike energy costs—which tend to affect only one category of spending—tariffs are perceived by consumers as influencing a wider range of goods and are seen as persistent policy-driven factors that add uncertainty across supply chains. Increased media attention around trade policy may also have contributed to households placing greater emphasis on tariffs when forming their outlooks for future price increases.
As reported by Bloomberg: “increases in consumer inflation expectations coincided with heightened discussion of tariffs and their potential pass-through to consumer prices” (Rovella 2025).
The findings underscore that while energy prices have long influenced household views on future inflation, other factors such as policy changes can become more important signals under certain conditions.
Jason P. Brown is vice president and economist at the Federal Reserve Bank of Kansas City.
