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Ahead of Wednesday’s CPI release, which is expected to show more signs of inflation stalling above the desired 2-percent target, a monthly report from the Federal Reserve Bank of New York showed that Americans are increasingly pessimistic about the mid-term inflation trend. According to the latest Survey of Consumer Expectations, Americans’ inflation expectations for three years from now climbed from 2.6 percent to 3.0 percent in December 2024, the highest level since November 2023. Meanwhile, the median expected inflation rate one year ahead remained unchanged at 3.0 percent, where it has been for 9 of the past 12 months.
Both actual inflation and 12-months expectations peaked in June 2022, at 9.0 percent and 6.8 percent, respectively. Since then, inflation has cooled notably, dropping as low as 2.4 percent in September 2024 before creeping back up to 2.7 percent in November. Wednesday’s CPI report is expected to show a further uptick to 2.9 percent and there’s a high degree of uncertainty over what the incoming Trump administration means for the inflation outlook. Experts fear that some of the campaign promises made by Trump, most importantly the blanket tariffs he proposed, would have an inflationary effect on consumer prices. Another central theme of Trump’s campaign, the mass deportation of undocumented immigrants, could further fan inflation, as it would likely result in labor shortages and higher wages, which could boost consumer spending and put upward pressure on prices.
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.