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Inflation Expectations Among U.S. Consumers Hit New Highs in Fed Survey


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© Bloomberg. Pedestrians carry shopping bags in San Francisco, California, U.S., on Thursday, Sept. 16, 2021. Prices paid by U.S. consumers rose in August by less than forecast, snapping a string of hefty gains and suggesting that some of the upward pressure on inflation is beginning to wane. Photographer: David Paul Morris/Bloomberg

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(Bloomberg) — U.S. consumers’ expectations for inflation continued to rise in September amid elevated price pressures, according to a Federal Reserve Bank of New York survey.

American household expectations for inflation one year ahead rose to 5.3% last month from 5.2% in August, while median expected inflation three years ahead rose to 4.2% from 4%, results of the New York Fed’s monthly Survey of Consumer Expectations, published Tuesday, showed. Both marked the highest readings on record in the survey’s eight-year history.

Inflation, as measured by the Fed’s preferred gauge, was 4.3% in the 12 months through August, well above the central bank’s 2% target. Fed officials including Chair Jerome Powell have chalked up the elevated inflation rates to supply-chain bottlenecks and other transitory pressures tied to the reopening of the economy as the coronavirus pandemic recedes, and have said they expect inflation to drift back down to about 2% by the end of next year.

Still, central bankers keep a close eye on inflation expectations because they believe such expectations to be a key determinant of the course of actual inflation in the future.

 

Deutsche Bank (DE:) economists said Tuesday they now expect the Fed to begin raising interest rates from their current near-zero levels in December 2022 — earlier than previously anticipated — in large part due to the rise in various measures of inflation expectations.

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The New York Fed noted in Tuesday’s press release that “longer-term (5-year ahead) inflation expectations still appear to be as well anchored as they were two years ago, before the start of the pandemic,” pointing to a recent blog post on the bank’s website containing additional data from the survey.

©2021 Bloomberg L.P.

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