Americans’ inflation expectations hit new 11-year high in June, New York Fed says

According to a key New York Federal Reserve survey released on Monday, consumer expectations for where inflation will be a year from now hit a new high in June, a worrying sign for the U.S. central bank as it tries to calm the surge in prices.

The median expectation is that the inflation rate will rise 6.8% in a year, surpassing the previous high of 6.6% recorded in March, according to the New York Federal Reserve’s survey of consumer expectations. The outlook for price increases is the highest since the survey began in 2013. Despite this, consumers see inflation slowing slightly to 3.6% in three years from 3.9% recorded last month. .

“Median inflation uncertainty – or expressed uncertainty about future inflation outcomes – increased at the one-year horizon to a new series high, but remained unchanged at the horizon. of three years. Uncertainty at the five-year horizon has increased,” the survey said.

As consumers raise their expectations for inflation over the next year, they believe things like gas, medical care, rent and tuition will also rise over the next 12 months. However, they expect food prices to moderate in the coming months.

AMERICANS PAY EXTRA $5,000 A MONTH ON GASOLINE AS PRICES RISE ONLINE

A Chevron gas station displays the price per gallon at over $7 in Los Angeles, California on June 22, 2022. ((Photo by FREDERIC J. BROWN/AFP via Getty Images) / Getty Images)

The report is based on a rotating panel of 1,300 households.

The survey plays a vital role in determining how Fed policymakers react to inflation crisis. Indeed, actual inflation depends, at least in part, on what consumers think it will be. It’s kind of a self-fulfilling prophecy – if everyone expects prices to rise 3% in the year, it signals to companies that they can raise prices by at least 3%. Workers, in turn, will want a 3% wage increase to offset rising costs.

A stronger-than-expected rise in inflation expectations in May actually prompted Fed officials to approve the first 75-basis-point interest rate hike since 1994, fearing the rise in prices could become entrenched. .

Explaining the Fed’s decision at a press conference after the meeting, Chairman Jerome Powell said policymakers were looking for evidence that monthly inflation was flattening or beginning to decline. With consumer prices surprisingly on the rise repeatedly and inflation expectations rising unexpectedly, officials determined that “strong action was warranted,” he said.

Federal Reserve Jerome Powell

Federal Reserve Chairman Jerome Powell arrives to speak at a news conference, Tuesday, March 3, 2020, to discuss an announcement from the Federal Open Market Committee, in Washington. ((AP Photo/Jacquelyn Martin)/AP Newsroom)

“One of the factors in our decision to go ahead with 75 basis points today was what we saw in inflation expectations,” Powell told reporters at a news conference. after the meeting. “We are absolutely committed to keeping them pegged at 2%. That was one of the reasons, the other was just the CPI reading.”

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The new projections come just days before the release of new Consumer Price Index data, which is expected to be even more doozy: Economists polled by Refinitiv expect inflation to have jumped 8.8 % in May on an annual basis, another 41-year high.

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