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Inflation Expectations Fall to Lowest Level Since April 2021

This is a syndicated repost published with the permission of Statista | Infographics. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

One day before today’s CPI release gave us the latest status report on the ongoing fight against inflation, a monthly report from the Federal Reserve Bank of New York showed that Americans are increasingly optimistic about the near-term inflation trend. According to the latest Survey of Consumer Expectations, Americans’ inflation expectations for twelve months from now dropped to the lowest level since April 2021, while expectations for three years ahead remained unchanged for the third consecutive month.

In November, the median expected inflation rate one year ahead was 3.4 percent, down from 3.6 percent in the previous month and from 5.2 percent a year ago. Looking three years ahead, the median expected inflation rate remained anchored at 3.0 percent in November, up slightly from levels seen earlier this year. Both actual inflation and 12-months expectations peaked in June 2022, at 9.1 percent and 6.8 percent, respectively. Since then, inflation has cooled notably, coming down to 3.1 percent in November, according to today’s CPI reading. The fact that Americans expect inflation to be at roughly the same level if not higher twelve months from now speaks volumes about the perceived stickiness of inflation and about how cautious people have become in their outlook.

Expectations play a crucial role in inflation dynamics, as expectations of future inflation influence wage negotiations and price-setting processes, which then feed into current inflation rates. When expectations of future inflation are high, prices and wages are likely to be set accordingly, creating a self-fulfilling prophecy.

This chart shows the median expected inflation rate one year and three years ahead according to U.S. consumers.

Inflation expectations in the US

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