Medium-term inflation expectations among American consumers rose to an eight-year high in July, according to a survey released on Monday by the New York Federal Reserve.
Consumers’ expectations for what inflation will be at the three-year horizon increased from a median 3.6 percent in June to 3.7 percent in July, the highest level since August 2013, according to the Aug. 9 survey.
Americans aged 60 and over reported the highest anticipated rise in prices over the medium term, with a median prediction of inflation of 5.0 percent, while the under-40s reported the lowest, at 3.0 percent.
Broken down by income, people who earn less than $50,000 reported the highest inflation expectations at a median of 4.7 percent, while those earning over $100,000 reported the lowest, at 3.1 percent.
At the same time, median expectations for inflation over the next year remained at a series high of 4.8 percent in July, the survey showed, while consumer’s year-ahead earnings expectations hit a record high of 2.9 percent.
The survey of consumer expectations, which is based on a rotating panel of 1,300 households, can be a helpful gauge for Fed officials as they weigh the inflation outlook and mull related policy moves.
Fed policymakers are discussing how and when to begin pulling back on the extraordinary support measures provided during the COVID-19 pandemic, with some officials expressing concern that recent inflationary pressures may last longer than anticipated. Last year, the Fed cut its benchmark overnight interest rate to near zero and began buying $120 billion in Treasuries and mortgage-backed securities each month to bolster the economy.
Federal Reserve Vice Chair Richard Clarida said in a webcast discussion hosted by the Peterson Institute for International Economics that the economic conditions for raising interest rates could be met by the end of 2022, paving the way for a liftoff of the Fed’s benchmark rate from its current level of near zero.
By Tom Ozimek