Consumer inflation expectations are back at record highs, but people have no plans to slow their spending, according to a regional Federal Reserve bank survey released Monday.
Households saw a 6.6% median inflation rate in the year ahead, setting a record high first set in March, according to the Federal Reserve Bank of New York’s consumer expectation survey.
“In contrast, the median three-year-ahead inflation expectations remained unchanged at 3.9%,” the Fed report said.
While people participating in the survey were more certain about persistent inflation, it showed record high levels of uncertainty about what the next three years have in store.
Concerns about stagflation — rising coupled rates with an increase in unemployment and slowing economic growth — also appear to be mounting. But it bears repeating that the US is not anywhere close to double-digit unemployment, which comprises one of the technical definitions of stagflation.
Mean unemployment expectations — or the mean probability that the US unemployment rate will be higher one year from now — rose for the third consecutive month to 38.6% in May from 36.3% in April, the Fed said. This is the highest reading since February 2021.
While US unemployment claims jumped 27,000 to five-month high of 229,000 for the seven days ended June 4, raw or current jobless claims were little changed. However, some economists say the economy is likely to slow in the months ahead as the Federal Reserve raises interest rates in an effort to keep a lead on inflation. Some companies have already cut back on their hiring plans, and even rescinded some offers. On a positive note: The unemployment rate was unchanged at 3.6% in May, close to a 54-year low.
The latest New York Fed survey was released days after May’s red-hot inflation data amid murmurs of another looming recession. It also comes on the heels of several other consumer-sentiment surveys showing a pall of pessimism over American consumers.
“People are struggling to keep up with rising prices, more respondents said their finances are worse now than a year ago. ”
In fact, expectations about median spending growth by households climbed to a record high of 9%, the survey data showed. It’s the fifth straight increase for the New York Fed’s monthly gauge on consumer mood and outlook. Survey participants without college degrees and those in the 40 -60 demographics were under particular pressure to increase their spending, the survey suggested.
People are struggling to keep up with rising prices, more respondents said their finances are worse now than they were a year ago. In fact, the perceived average chance of missing a minimum debt payment in the next three months increased by 0.4 percentage point to 11.1%. The Fed research notes the increase was “most pronounced” for the age 40-60 demographic.
The survey follows Friday’s release of inflation data showing year-over-year inflation rate of 8.6%, remaining at a 40-year high.
The “catastrophically bad” Consumer Price Index numbers burned investors Friday and the day ended with a sharp sell off. Adding to those pressures: The national average cost for a gallon of gas reached $5 on Saturday, according to AAA.
“The mean reported probability that US stock prices will be higher 12 months from now decreased by 1.7 percentage point to 36.2%,” the New York Fed said.
The stock market is looking no better on Monday as the S&P 500 SPX,
could be poised to close in bear market territory, defined as a 20% pullback from a recent high. The Dow Jones Industrial Average DJIA,
was down more than 2% and the Nasdaq Composite COMP,
was down more than 4% in Monday morning trading.
The New York Fed survey comes days ahead of the Federal Reserve’s next decision on interest rate increases in its ongoing attempts to tame inflation. The Fed has already raised the benchmark rate twice. An increase in the benchmark rate causes other rates, including rates on credit cards and personal loans, to jump.
Perceptions of credit access introduced again in May, marking the fifth straight month where consumers say credit access is becoming more difficult.