Home >Economy >New York Fed survey shows inflation expectations at record highs in August

Americans are expecting a record surge in inflation over the next few years, according to a new report from the Federal Reserve Bank of New York.

In its August Survey of Consumer Expectations, the bank said Monday that respondents see inflation a year from now at 5.2%, up from 4.9% the prior month. Three years from now, it is expected to be at 4%, up from 3.7% in July. Both readings mark record-high readings for data that goes back to 2013.

The report also found projections of big increases in some of the most important costs Americans face on a regular basis. Food prices are seen rising by 7.9% a year from now, rent by 10% and medical care costs by 9.7%.

Lessening the blow of the expected leap in price pressures is respondents’ sanguine outlook for their personal finances. The survey found that the median expected growth in household income a year from now hit a series high of 3%. Survey respondents also expect home-price growth to slow.

The New York Fed survey arrives at a time of flux for the U.S. economy. So far, the recovery process from the depths of the coronavirus pandemic’s impact has been swift, but that rebound has been accompanied by much higher than expected levels of inflation, Fed officials have acknowledged.

The jump in price pressures has been driven largely by supply disruptions tied to the reopening process. Fed officials have repeatedly flagged that most of the biggest gains in inflation have happened in parts of the economy most affected by the pandemic.

Central bankers, who have maintaining price stability as an official goal, still largely say they believe that price pressures will moderate over time as imbalances get resolved. “It’s going to take some time," but the disruption causing the inflation jump should abate and “that’ll help the inflation measures move back down," Cleveland Fed leader Loretta Mester told reporters on Friday.

Fed officials also base their confidence that inflation will moderate on what many of them see as relatively stable long-term inflation expectations.

In an interview last week, Federal Reserve Bank of Atlanta President Raphael Bostic said he’s looking to see if “businesses and families are starting to make decisions, taking on board these higher levels of inflation as something that is potentially more permanent. If those sorts of behavioral changes start to play out, then that’s something I’ll have to take on board" when thinking about where monetary policy needs to be set.

“Fortunately we have not seen that in terms of long run inflation expectations-—there’s been a little movement in the short run side, but since that hasn’t necessarily, or to this date, bled into the longer run, I’m, I’m inclined to mainly look through it," and retain confidence price pressures will moderate over time, Mr. Bostic said.

That said, the New York Fed data show inflation expectations are blasting through the Fed’s 2% inflation target, while actual inflation also exceeds that goal. The personal consumption expenditures price index, the central bank’s preferred inflation barometer, showed prices rose by 4.2% year-over-year in July.

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