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NY Fed Survey Reveals Inflation Expectations at Record Levels, Living Expenses Shoot Up

Published: November 11, 2021
WASHINGTON, DC - MAY 18: Sen. Rick Scott (R-FL) speaks before a Senate Republican Policy luncheon at the Russell Senate Office Building on May 18, 2021 in Washington, DC. Scott spoke on inflation and the rising cost of goods prior to the meeting. (Image: Kevin Dietsch/Getty Images)

In its latest monthly survey, the Federal Reserve Bank of New York revealed that the short-term inflation expectations of Americans reached an all-time high in October. Moreover, their opinions are unfavorable when it comes to immediate and near-term household finances.

The bank, in its Survey of Consumer Expectations, found that median expectations for inflation in the next 12 months jumped to 5.7 percent in October from 5.3 percent the previous month, which is a record high level since the launch of the survey in June 2013.

“The increase in the short-term measure was the series’ twelfth consecutive increase and was most pronounced for respondents who have at least a college degree and those between ages 40 and 60… Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased at both the short- and medium-term horizons. Both measures reached series highs in October,” the bank said in a news release,

U.S. consumers are preparing themselves for the highest inflation levels in almost a decade. They expect the price of essentials like food, gas, and rent to rise along with tuition fees and more expensive purchases like cars. Medical care and home prices are the only things Americans see getting cheaper over the next year.

The survey found that median expectations for a change in the price of gas in the year ahead rose to 9.4 percent in October from 5.9 percent in September.

The forecast for median household spending growth rose by 0.4 percentage points to 5.4 percent in October, reaching a series high. Americans see household income growing by 3.3 percent over the next one year, which is also a new high and is up by 0.3 percentage points. 

Regarding household finances, most Americans say that they are struggling more now compared to a year back. They are less upbeat about their finances in the year ahead in spite of anticipating a healthier job market and bigger paychecks. A rise in college and food costs is also predicted.

Jerome Powell, chairman of the Federal Reserve, has chiefly laid the blame of rising prices on supply chain bottlenecks and labor shortages that have driven wages higher. He also sees a rise in the number of “pent-up” consumers having plentiful stimulus cash as a cause for the inflation spike.

Powell, who has maintained that the rise in inflation is “transitory,” admitted during the Fed’s two-day policy-setting meeting last week that the surge may not subside until the latter half of 2022. He also noted that an easing of supply chain tensions will ultimately stop the violent fluctuations in consumer prices.

“Our baseline expectation is that supply bottlenecks and shortages will persist well into next year and elevated inflation as well… And that, as the pandemic subsides, supply chain bottlenecks will abate and job growth will move back up. And as that happens, inflation will decline from today’s elevated levels,” Powell told reporters. 

Annual inflation as measured by the Fed’s preferred gauge was at 4.4 percent in September, the highest in three decades.