Consider an economy where the central bank has a long-standing, credible reputation for controlling inflation and has just reiterated its firm commitment to a 2% annual inflation target. In the same month, a temporary disruption to global oil supplies causes the price of gasoline to jump by 40%. Based on the primary factors that shape inflation expectations, which of the following outcomes is most likely for the public's expectation of inflation over the next year?

Inflation Expectations in Econlandia

Analysis of Expectation Formation Mechanisms

Contrasting Inflation Expectation Formations

Match each theory of how inflation expectations are formed with its core principle.