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Fed Survey Shows Consumers Expecting Higher Inflation Over Next Year

  • Inflation expectations for the year ahead hit a record high of 4 percent in recent Fed survey
  • Fed officials believe inflation will be temporary as the United States recovers from the COVID-19 pandemic
  • Respondents were more optimistic about labor market conditions

Summary by Dirk Langeveld

Consumers are girding for higher inflation in the year ahead, according to the latest Survey of Consumer Expectations from the Federal Reserve Bank of New York. Respondents were more optimistic about the labor market, but also less likely to believe that their financial situation will be better a year from now.

The median expectation for year-ahead inflation in the May report was 4 percent, up 0.6 points from April. This marked a survey high as well as the seventh consecutive month of increasing inflation expectations. Respondents expect price increases across the board, including home prices, rent, gas, food, medical care, and college education.

Fed officials have said they believe inflationary pressures will be temporary as the nation recovers from the COVID-19 pandemic. Treasury Secretary Janet Yellen recently said she expects inflation to reach as much as 3 percent before receding.

Other responses from the Survey of Consumer Expectations include:

  • Respondents see a better labor market for job-seekers, saying they are less likely to believe they are at risk of losing their job and more likely to find a new job if they lost their current one; respondents also expect lower unemployment a year from now
  • The median respondent expected their earnings to improve 2.5 percent in the year ahead, up 0.4 points
  • Respondents were more optimistic about their ability to access credit and meet debt obligations
  • However, a slightly larger share of respondents reported being worse off financially than they were a year ago, and fewer people expect their financial situation to be improved a year from now

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