U.S. Inflation Expectations Rise to New Highs in N.Y. Fed Survey By Bloomberg

(Bloomberg) — U.S. consumers’ expectations for inflation over the medium term rose to an eight-year high in May, according to a Federal Reserve Bank of New York survey.

The median survey respondent anticipated an inflation rate of 3.6% in three years, up from 3.1% in April, the New York Fed said Monday. The reading marked the highest level since August 2013, while short-term expectations, over one year, reached a record.

Fed officials may discuss the data points at this week’s Federal Open Market Committee meeting, in which they will debate the U.S. central bank’s next steps for monetary policy. They follow measures of inflation expectations closely because they believe them to be key determinants of actual inflation.

Inflation hawks may point to the risk of higher expected inflation becoming embedded in price-setting behavior. Doves may argue the smaller increase in medium-term expectations versus short-term ones supports their view that the current bout of price increases is associated with the reopening of the economy as the pandemic recedes and will be temporary.

Expected inflation one year ahead rose to 4% in May from 3.4% the month before, the New York Fed data showed.

“Notably, medium-term inflation expectations have increased at a slower pace than short-term inflation expectations over the past few months, and the difference between one- and three-year-ahead median inflation expectations (0.4 percentage point) marks a series high,” the New York Fed said in a press release.

Consumer prices rose 5% in the year through May, marking the fastest annual pace since 2008, according to Labor Department figures published on June 10.

Other widely followed measures have begun to cool in recent weeks. Preliminary results from the University of Michigan’s monthly survey of U.S. consumers indicated that expected inflation 5-10 years ahead may have fallen to 2.8% this month after rising to 3% in May.

The 10-year breakeven inflation rate — which measures the difference between yields on nominal 10-year Treasury securities and 10-year Treasury inflation-protected notes — was near 2.35% on Monday, down from a high of 2.56% in mid-May.

Data from the New York Fed survey suggested consumers expected accelerating inflation in the year ahead across categories included in the questionnaire.

The median one-year-ahead expected change in the price of food and rent increased by 2.2 and 0.3 percentage points, respectively, to new series highs of 8% and 9.7%, the New York Fed said. The readings for gas and the cost of medical care rebounded by 0.6 and 0.3 percentage point, respectively, to 9.8% and 9.4%, the survey showed.

The change in the cost of a college education increased by 0.2 percentage point to 6.1%, according to the survey.

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