Consumers raise inflation expectations, survey shows

Prediction reflects concerns over economic stability and finances

Consumers raise inflation expectations, survey shows

The Federal Reserve Bank of New York's latest survey shows that US consumers have adjusted their inflation expectations, predicting higher prices in the coming years.

In December, respondents forecast inflation at 3% three years ahead, an increase from 2.6% in November.

Meanwhile, expectations for inflation over the next year held steady at 3%, while projections for five years from now decreased slightly to 2.7%, down from 2.9%.

These changes in outlook align with broader concerns about inflation, as reflected in a separate University of Michigan survey.

The survey showed a notable jump in long-term inflation expectations, driven by worries over potential tariffs under the incoming Trump administration.

Consumers in that survey now expect prices to rise by 3.3% in the next year, a half-percentage-point increase from December’s forecast.

As inflation concerns grow, financial markets have adjusted their expectations as well. Investors have scaled back bets on interest-rate cuts by the Federal Reserve, resulting in the highest yields on 10-year Treasury notes in over a year.

This shift highlights growing doubts about the central bank's ability to meet its inflation target in the near term. The Bureau of Labor Statistics is expected to release its monthly consumer price data later this week, further shedding light on the inflation trend.

The New York Fed’s survey also revealed mixed sentiment regarding the labor market.

While the perceived likelihood of job losses declined, fewer people now expect to voluntarily leave their jobs. Additionally, respondents’ perceived chances of finding new employment in case of job loss fell to 50.2%, the lowest level since April 2021.

Concerns over financial stability were also apparent. The survey found that the likelihood of missing a minimum debt payment in the next three months rose to 14.2%, matching the highest level since April 2020. Those earning more than $100,000 reported the highest probability of missing a payment in over a decade, indicating growing financial stress among higher-income households.

How do you think consumers will adjust their financial strategies in the coming months? Share your thoughts in the comments.