Year-Ahead Inflation Outlook Matches Record, NY Fed Survey Finds

Year-Ahead Inflation Outlook Matches Record, NY Fed Survey Finds

(Bloomberg) — US consumers expect prices to rise even faster over the next year, and that will propel spending to a record, according to a survey from the Federal Reserve Bank of New York.

One-year ahead median inflation expectations climbed in May to 6.6% from 6.3%, tying the highest reading since the survey began in June 2013. That’s going to take a bigger bite out of Americans’ wallets, as forecasts for household spending jumped for a fifth month by a series high 9%, the regional Fed said in its May Survey of Consumer Expectations.

US inflation accelerated to a fresh 40-year high last month, indicating price pressures are becoming entrenched in the economy and shattering consumer confidence. That’s raising bets that the Fed will have to act even more aggressively, starting with what most traders see as a half-point interest rate hike this week.

A quarter of respondents expect prices to jump to a record 10% in the coming year. In contrast, the median forecast for inflation on the three-year horizon remained unchanged at 3.9%, a hopeful sign for the Fed as it tries to keep such expectations anchored.

Respondents in the New York Fed survey were more pessimistic on prices than those polled early June by the University of Michigan, which found that consumers expect prices to advance 3.3% over the next five to 10 years, the most since 2008 and up from 3% in May.

The New York Fed survey highlights the dour mood of the public in more ways than just high prices. The mean probability that the US unemployment rate will be higher one year from now increased for a third month to 38.6% in May. That’s the highest reading since February 2021. 

For the fifth consecutive month, more respondents also said it’s harder to obtain credit compared to a year ago. A jump in respondents ages 40 to 60 in particular saw an increased probability of missing a minimum debt payment over the next three months. One in eight middle-aged consumers expect a payment shortfall, the most since May 2020.

Year-ahead expectations about households’ financial situations also deteriorated in May, with more respondents expecting to be worse off a year from now than they are today — the highest since the survey started in mid-2013.

Higher household spending could be a positive in the sense that it’s the largest contributor to US economic growth. However, Americans are increasingly dipping into savings and loading up on credit cards to support such purchases, and that could tip the Fed to act more aggressively to curb demand.

Expectations in year-ahead price changes for many commodities remain elevated, with rents near a record and consumers’ projections for the cost of food at 9.3%.


©2022 Bloomberg L.P.



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