For all the talk about how the “disinflation process has begun” (to quote Jerome Powell), there sure is a lot of ambiguity among consumers about the near-term path for prices.

While it’s true that longer-term expectations remain anchored both according to consumer surveys and various market-based measures, the sheer amount of confusion and disagreement about what’s in store over the next 12 months is problematic.

Why? Well, because when the public harbors widely divergent views about the likely trajectory of prices for goods and services, that bewilderment will impact consumption decisions, likely in unpredictable ways. In short: It’s conducive to macro volatility, which could be self-reinforcing.

Consider that higher macro volatility (precipitated by the pandemic and, later, the conflict in Ukraine) is itself the cause of inflation uncertainty. If that uncertainty becomes a driver of macro volatility which then feeds back into the fundamentals, an already perplexing situation becomes that much more difficult for policymakers to parse.

The chart proxies inflation uncertainty via the interquartile range of the University of Michigan’s inflation expectations gauges.

The good news is that uncertainty has receded at the five- to 10-year point. But during early February, when year-ahead inflation expectations unexpectedly rose to 4.2%, uncertainty “expanded” back near the highs and, more to the point, back to levels indicative of the most indeterminate near-term outlook for prices in modern US history.

Unfortunately, this situation isn’t likely to improve much in the foreseeable future. For one thing, geopolitics is conspiring to bias developed market inflation higher and more volatile, as discussed in Friday evening’s weekly+. In addition, if there’s any truth to the notion that labor shortages across OECD nations are likely to be structural going forward, that’ll have the same effect, and it could compound unpredictable geopolitical developments.

On a more mundane note, next week’s crucial CPI report will include updated spending weights. Although, as TD strategists including Oscar Munoz and Jan Groen wrote, the new weights will probably only matter “at the margin,” and are unlikely “to materially change” analysts’ “expectations for the path of inflation” over medium- and long-term forecast horizons, it’s just one more element of uncertainty, albeit one that can presumably be “backed out” by analysts and Fed officials in the event it produces the “wrong” results.

There are other reasons to be wary. “Our economists have argued that inflation readings might be stronger at the start of the year because a disproportionate number of prices are reset, and firms might set contract rates higher than usual in the current environment,” Goldman’s Kamakshya Trivedi said late Friday. “If it occurs, we would not discount this as a ‘normal’ seasonal distortion, because it would demonstrate the mechanism that could lead to a more prolonged overshoot of the Fed’s inflation aim.”

There’s quite a bit of “whispering” going on about the potential for hot readings, which also means that in the event the figures “disappoint” those hawkish whispers, markets would be left to trade+ a de facto dovish surprise.

It’s all quite confusing, and, coming full circle, that’s reflected in consumers’ inability to reach a consensus. That’s problematic — these being consumer prices, and all. It’ll be more confusing still in the event the Fed’s target proves so elusive that policymakers are forced to set new goals.