Which is closer to your inflation rate: 2.1% or 6.7%?

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The Federal Reserve may be losing the fight to hold down the public’s inflation expectations.

The inflation rate Americans expect over the next 12 months surged to 6.7%, on average, in the Conference Board’s March consumer confidence survey, reported Tuesday.

The figure was the third straight increase and was up sharply from 5.6% in the board’s February survey.

The March reading was the highest since the expected rate reached 6.8% in the spring of 2008, when commodity prices were rocketing. The expected rate peaked at 7.7% in June of that year.

This year, rising commodity prices again are the likely culprit driving consumers’ perception of the overall inflation rate, said Lynn Franco, director of research at the Conference Board in New York. Gasoline prices and grocery costs “are the two sources of constant feedback” on prices for most people, she noted.

Yet if financial markets believed that official U.S. inflation would reach 6.7% in the next year, they almost certainly would have a collective heart attack.

As measured by the government’s consumer price index, inflation remains well below the survey’s expected rate. The CPI was up 2.1% in February from a year earlier.

And by the Federal Reserve’s preferred index -- the so-called core inflation rate, meaning prices excluding food and energy -- official inflation rose just 0.9% in the 12 months through February.

Understandably, the Fed’s emphasis on the core rate has long rankled many Americans as being ridiculously insensitive to the real-world conditions that average families face.

People are guessing when asked about the inflation rate, of course. But depending on your spending patterns, your personal inflation rate this year may well be closer to the Conference Board survey estimate than to the official CPI.

From the Fed’s point of view, the survey figure may be less important than whether it’s the start of a trend. The central bank can’t afford for the public to believe that inflation will march inexorably higher, because perception can become reality: If people think prices will rise sharply, they could develop a hoarding mentality that could make higher prices self-fulfilling.

What’s more, expectations of rising inflation could drive up long-term interest rates and cause more investors to abandon bonds and stocks in favor of classic inflation hedges such as gold.

In their post-meeting statement March 15, Fed policymakers acknowledged that “commodity prices have risen significantly since the summer” but added that “Nonetheless, longer-term inflation expectations have remained stable.”

The Conference Board survey shows that many consumers no longer believe inflation is stable.

-- Tom Petruno