Consumers’ Short-Term Inflation Expectations Hit New High: New York Fed

Median inflation expectations for the short term, one year ahead, rose by 0.1 percentage points in September to 5.3%, the Federal Reserve Bank of New York’s Center for Microeconomic Data reported earlier this month. This was the 11th consecutive monthly increase and a new high for the New York Fed’s Survey of Consumer Expectations.

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads who participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. 

Median medium-term (three-year-ahead) inflation expectations also increased, to 4.2% from 4%. At the same time, longer-term (five-year ahead) inflation expectations still appear to be as well anchored as they were before the pandemic, according to the report; they are little changed from July 2019, up to 3.16% from 3%.

The survey found that median year-ahead home price change expectations decreased by 0.4 percentage points in September to 5.5%, the fourth consecutive monthly decrease. Respondents who live in the West and Northeast Census regions drove the decrease for the most part.

Expectations about year-ahead price changes decreased for all the commodities considered in the survey:

• Median short-term expectations for the price of gas decreased from 9.2% to 5.9%.
• Cost of a college education, down 1.1 points to 5.9%.
• Price of food, down 0.9 points to  7%.
• Cost of medical care, down 0.3 points to 9.4%.
• Rent fell 0.3 points to 9.7%.

Labor Market

According to the SCE, respondents’ median one-year-ahead expectations for earnings growth rebounded in September, increasing 0.4 points to 2.9%, well above its 12-month trailing average of 2.2%. The increase was driven primarily by respondents older than 40 and ones without a bachelor’s degree.

The mean probability that the U.S. unemployment rate will be higher one year from now increased by 0.8 points to 35.8%, slightly above its 12-month trailing average of 35.7%. 

The mean perceived probability of losing one’s job in the next 12 months decreased from 12.5% to 11.1%. This decrease showed up mainly among respondents younger than 40 and those with less than $50,000 in annual household income. 

The mean probability of leaving one’s job voluntarily in the next 12 months also decreased, from 20% to 18.9%. The decrease was more pronounced among respondents older than 60, those with no more than a high school diploma and those with more than $100,000 in household income.

And in a reading that remains below its pre-pandemic levels, the mean perceived probability of finding a job if one’s current job was lost rose to 55.2% from 54.9% in August. 

Household Finance

Both the median expected growth in household income and in household spending remained unchanged in September at 3% and 5%.

Survey participants’ perceptions of credit access were mixed, with fewer respondents finding it easier to obtain credit now than a year ago, but also fewer respondents finding it harder to obtain credit now than a year ago. Likewise for expectations about future credit availability.

The average perceived probability of missing a minimum debt payment over the next three months increased by 0.3 points to 9.9%, but remains just below its 12-month trailing average of 10.1%.

The survey also found these median expectations for year-ahead changes:

• Taxes at current income level, down by 0.3 points to 4.3%.
• Growth in government debt, down to 14.4% from 15.1% in August.
• U.S. stock prices will be higher in 12 months, down 0.5 points to 38.5%.

Perceptions about households’ current financial situations deteriorated slightly, with more respondents reporting being financially worse off than they were a year ago. In contrast, more respondents expect their households’ financial situation to improve a year from now.