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Expected Inflation

Inflation

Consumer expect more immediate inflation and then a leveling off period, the big question is what is the Fed going to have to do stamp out inflation and will the rest of the government help. It will be interesting to see and hopefully there won’t be too much more collateral damage.

With the Federal Reserve intent on keeping high inflation from becoming entrenched, surveys of Americans’ views on future inflation have become uncommonly important in shaping policy.

The latest such reading offers what are — at first glance, at least — weird mixed signals. But there may be a coherent, good-news story out of them.

Driving the news: Americans’ inflation expectations in the year ahead spiked in June, according to the New York Fed’s Survey of Consumer Expectations. But their expectations for inflation in the medium- and long-run fell.

Between the lines: There’s a potential coherent story here. Gas prices peaked in mid-June, so it stands to reason people were pessimistic about inflation over the next year.

However, the news was also full of headlines about rising recession risk and the Fed’s determination to stamp out inflation.

It’s plausible that Americans simultaneously started to expect higher inflation in the near term due to rising gas prices while becoming more confident that it will come down in the years ahead.

Survey respondents also pulled back on their expectations for their own household spending over the coming year — now expecting 8.4% growth, down from 9% in May. That’s good news for the Fed as it tries to tamp down excess demand in the economy.

Yes, but: These shifts, while potentially positive for the Fed’s anti-inflation campaign, could simply reflect the statistical randomness inherent in any survey of 1,300 households.

Axios Macro By Neil Irwin and Courtenay Brown · Jul 11, 2022

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