Inflation Expectations Hit All-Time High in N.Y. Fed Survey

Americans are expecting a record deluge of inflation over the next year—and they expect high levels of inflation to stick around for years, according to a report released Monday by the Federal Reserve Bank of New York.

At the same time, expectations for future earnings growth declined, raising the prospect of stagflation.

The N.Y. Fed’s August Survey of Consumer Expectations found that the one-year-ahead inflation expectations jumped by three-tenths of a percentage point to 5.2 percent, the tenth consecutive monthly increase and the highest reading ever produced in data going back to 2013.

The median inflation expectations for three years from now also climbed three-tenths of a percentage point to a new series high of 4.0 percent.

The Fed said both increases were broad based across age and income groups.

Some details:

• Food: inflation expectations rose eight-tenths of a percentage point for food to 7.9 percent;
• Rent: increased by 0.2 percentage point for rent to 10.0 percent;
• fMedical care: increased by 0.2 percentage point for medical care to 9.7 percent; and
• Gasoline: increased by 1.1 percentage points to 9.2 percent.

Median one-year-ahead expected earnings growth fell four-tenths of a percentage point in August to 2.5 percent, comparable to its February 2020 level. The decrease was driven mostly by respondents over the age of 40, the New York Fed said.

Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased by 3.3 percentage points in August to 35.0 percent. The mean perceived probability of losing one’s job in the next 12 months increased slightly in August to 12.4 percent from 12.2 percent in July, but remains near the lowest level going back to 2013.

The mean probability of wuitting in the next 12 months also increased to 20.0 percent from 19.7 percent. The mean perceived probability of finding a job (if one’s current job was lost) fell to 54.9 percent in August from 57.0 percent in July. The decrease was most pronounced among respondents aged 60 and over.

 

Would-be homebuyers expect some relief from skyrocketing home prices. The median year-ahead home price change expectations decreased slightly to 5.9 percent in August from 6.0 percetn in July, the third consecutive monthly decline. The decrease was driven primarily by respondents under the age of 40, according to the N.Y. Fed, and was largest for those who live in the “South” and “Northeast” Census regions.