Inflation Expectations Jump

Key Highlights

• Consumers anticipating higher inflation in both near term and over course of several years
• Inflation expectations one year from now hit 4% in May 2021

Inflation Expectations for One Year from Now Hit High of 4%

Consumers are totally dialed in to  higher inflation expectations.

According to a newly released study from the Federal Reserve Bank of New York, consumers are expecting higher inflation in the near-term and over the course of several years to jump. In May, short-term (one year from now) consumer expectations jumped +0.6% to 4%.

Longer term (over the next three years), consumer inflation expectations are anticipating gains of +3.6%, up from 3.1% in April

This 3.6% inflationary gain would put inflation levels consistent those seen in 2013

Higher Inflation Expectations Consistent with More Confidence in Job Market

According to this Federal Bank of New York survey, jobholders expect that the probability of their losing their jobs within this next year hit the lowest on record. Simultaneously, the probability of finding a job increased substantially.

Job openings continue climbing though hirings are slower than anticipated.  Demand for some consumer goods is surging and supply is hustling to meet that demand.

The bottom line…inflation is rising.

Federal Reserve Officials Cautiously Signaling Expectations to Raise Interest Rates

Because the Fed’s March projections of higher inflation and growth rates have been outdone by the latest increases in consumer prices, +5% in May, and employers are raising wages to hold on to their “talent,” officials with the Federal Reserve Bank are on their way to refining their thinking about interest rates.

Barclays Bank PLC now anticipates that annual inflation will hit 3.6% in Q4 2021.  This anticipation of 3.6% is nearly double the Fed’s target inflation rate of 2%.

JPMorgan Chase chief US economist Michael Feroli is expecting a median interest rate increase in 2023.  Feroli said, “We are also bringing forward our expectations for liftoff to late 2023.”

Fed governor Lael Brainard said, “Should inflation move materially and persistently above 2%, we have the tools and experience to gently guide inflation back down to target.  And no one should doubt our commitment to do so.”

Thanks to The Wall Street Journal and The New York Times.

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