Consumers’ inflation expectations hit record high

By Lucy Bayly, CNN Business

Consumer expectations for prices to continue rising over the next year increased to the highest level on record, according to the latest Survey of Consumer Expectations from the Federal Reserve Bank of New York, released on Monday.

Median short-term inflation expectations ticked up to 6.8% in June from 6.6% in May, the monthly survey showed. Expectations for longer-term inflation over the next three years fell to 3.6% from 3.9%, indicating a sliver of confidence that US officials and policymakers can eventually succeed in their battle to bring down surging prices.

Consumer price increases hit 8.6% in May, the highest level in 40 years, after Russia’s invasion of Ukraine triggered a global energy shakeup that exacerbated pandemic-related supply chain pressures that pushed up prices for everything from furniture to food. The Federal Reserve, which has been raising interest rates in order to tame rising prices, is seeking to lower inflation to its 2% target rate.

However, consumers don’t expect all prices to keep rising over the next year, the survey showed: Respondents said they anticipate home prices to fall by 4.4% over the next 12 months, the lowest level since February 2021 and down sharply from the 5.8% price increase recorded in May.

Having initially categorized the nation’s inflation as “transitory,” US officials have shifted away from that message, admitting that they were slow to recognize the ongoing impact of rising prices.

“I think I was wrong then about the path that inflation would take,” Treasury Secretary Janet Yellen told CNN last month. “There have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t — at the time — fully understand, but we recognize that now,” she said.

At a central bank forum in Portugal last month, Fed Chairman Jerome Powell acknowledged the challenges of inflation, saying, “I think we now understand better how little we understand about inflation.”

In March, the Federal Reserve began pulling back from its pandemic-era “easy money” policy by slowly raising interest rates and withdrawing the monetary support that had bolstered the US economy as the pandemic spread. Critics say the central bank’s languid approach allowed inflation to fester. In recent months, the Fed has adopted a more aggressive stance, hiking interest rates by 50 basis points in May and by 75 basis points in June, instead of the usual 25 basis points.

That aggressive action could lead companies to rein in their spending and hiring, leading to job loss, Powell has acknowledged — a point that is reflected in the June consumer survey. People’s expectations for job seekers to find a position in the next 12 months fell to 56.8% from 58.2%, while expectations for losing a job rose slightly to 11.9% from 11.1%. The mean probability of leaving a job voluntarily in the next 12 months dipped to 18.6% in May, well below the pre-pandemic reading of 22.2% in February 2020.

The overall picture for household finances amid the Fed’s rate hikes remains pessimistic, with more respondents reporting that they are financially worse off now than they were a year ago: 31.1% said they were “somewhat worse off,” compared to 28.6% in May; and 13.6% said they were “much worse off,” up from 10.8% in May.

In addition, the survey showed an uptick in fears of deterioration in access to credit, missing the minimum payment on a debt, and expectations that US stock prices won’t be higher 12 months from now.

The-CNN-Wire
™ & © 2022 Cable News Network, Inc., a WarnerMedia Company. All rights reserved.