Near-term consumer inflation expectations jumped to the highest level on record in a Federal Reserve Bank of New York survey, a sign that a pop in prices as the economy reopens from the pandemic is catching households’ attention.
The Fed is parsing what people think will happen with inflation to see if the recent jump in consumer prices is lifting outlooks in a lasting way. If households begin to expect rapid price gains year after year, they might both accept higher price tags and demand higher pay to cover rising costs. That could make today’s faster inflation — which officials expect to prove temporary — permanent.
The New York Fed survey suggests that shoppers figure they will have to pay more in the near term, but that they are somewhat less concerned about the medium term. Year-ahead inflation expectations jumped 0.8 points to 4.8 percent in June, a new series high, even as inflation expectations over the next three years remained little changed at 3.6 percent. Still, that medium-term price outlook is lingering at elevated levels when compared with recent years.
Fed officials have been striking an increasingly wary tone in recent months as prices rise faster than many economists had expected, driven partly by shortages as producers struggle to accelerate production to meet strong consumer demand. It is difficult to guess how rapidly those bottlenecks will clear up.
“It’s still too early to tell how things are going to evolve,” John C. Williams, the president of the Federal Reserve Bank of New York, said on a call with reporters on Monday morning. “We’ll just have to watch it carefully.”
Several data points suggest that quick price gains might prove more lasting than many analysts initially anticipated. Apartment rents are rebounding, some manufacturing disruptions abroad and shipping problems might last for months, and wages are rising for lower-paid workers, which could pass through to prices for restaurant meals and other services.
The New York Fed survey showed that household expectations for earnings growth are picking up, and that spending growth expectations jumped to a new series high.
Signs that the labor market is strong and the economy is roaring back come as something of a surprise at a moment when millions of jobs are still missing compared with before the pandemic. That contrast could make it challenging for the Fed to navigate policy going forward, because the central bank aims for both stable inflation and maximum employment when setting policy.
The Fed will get another critical data point as it tries to size up the situation this week when the Labor Department releases its Consumer Price Index of inflation on Tuesday morning. Economists at Goldman Sachs expect a 5.1 percent increase from the prior year, up from 5 percent the prior month.
“The last few months, and I guess the last three months, we’ve seen some pretty strong movements, and kind of crosscurrents, both in the employment data and the inflation data,” Mr. Williams said when asked about the outlook for the Fed’s enormous bond-buying program, one of its key monetary policies.
“We want to definitely see some more data,” he said.
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