What Is Expected Price Level?

Sometimes referred to as anticipated price level, an expected price level is the rate or price that goods and services can be reasonably expected to reach, given a specified set of economic circumstances. Typically, this type of figure is projected by economists or even by business owners as a means of developing some idea of what will happen in a given market should certain events come to pass. While it is possible for the expected price level and the actual level achieved to match, more often than not there is some difference between what is anticipated and the aggregate price that eventually prevails.

An expected price level attempts to take into consideration the range of economic variables that are likely to have some influence on consumer demand for various products. This includes recognizing that those variables will have some effect on the prices that manufacturers and suppliers can charge for those goods and services, as well as the level of production manufacturers can maintain and avoid huge inventories of finished goods. This includes considering factors such as the occurrence of a period of inflation or recession, a sudden rise in unemployment, scarcity of raw materials required for production, and even changes in consumer tastes due to emerging or new technology.

The identification of an expected price level usually begins with using a price level index that is recognized as a standard in the nation where the price level evaluation is taking place. From there, identifying the exact goods or services to be included in the evaluation is also necessary. Using real time data on current prices, it is possible to establish a figure that can serve as the starting point for the process. From there, applying the various potential movements of the marketplace based on certain events taking place makes it easier to get some idea of where the price index will move, and what that could mean for the expected price level of the products under consideration.

As the name implies, expected price level is a projection based on correctly assessing relevant economic indicators to predict what will happen with those goods and services in the future. Since unknown factors may materialize over time, making adjustments to this level as new data is made available is crucial. This is particularly true for government-based economists who may want to utilize governmental resources to help minimize a financial crisis in the nation, and even to business owners who wish to avoid overproduction or other factors that could place the companies into financial distress.