A Fed Survey Shows Consumer Inflation Expectations Rising

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Long-term inflation expectations rose slightly in July and consumers continue to anticipate rapid price increases in the near term as the economy reopens from pandemic-induced lockdowns, the Federal Reserve Bank of New York said on Monday.

The move in the Consumer Expectations Survey’s long-term price indicator was small, but it may make sense at a time when central bank officials are watching such measures closely.

Economic policymakers want to ensure that long-term inflation expectations remain low and stable. If consumers begin to expect goods and services cost more over time, they may become more willing to accept price increases, which can lock in faster inflation.

Long-term inflation expectations have remained relatively stable this year despite rising price increases. This is good news for Fed officials, as it supports the notion that today’s strong readings should lessen over time as the economy goes through an unusual reopening period.

The move in the New York Fed indicator is probably not enough to change this narrative, but the central bank will continue to watch as it pursues a series of price measures. The survey’s forecast of price increases in three years, 3.7 percent with 3.6 percent, the highest reading since August 2013. Price expectations of consumers for the next year rose sharply this yearheld steady at a high level.

Central bankers will have a chance to see how consumer prices are shaping up when the Bureau of Labor Statistics releases July inflation data, known as the Consumer Price Index, on Wednesday. The Fed is officially targeting a different price indicator, but the CPI comes out earlier, feeding the data the Fed’s preferred measure, making it a key data point.

Economists surveyed by Bloomberg said the CPI increased at a rate of 0.5 percent month-on-month, slightly slower than the previous month of 0.9 percent, but still at a rapid pace (average monthly increase in context). they are waiting. 0.2 percent in the last 20 years). Prices are expected to rise 5.3 percent year-on-year, falling slightly from 5.4 percent year-on-year through June.

Much of the recent rise in inflation is due to reopening quirks, such as a drop in airfare or the lack of computer chips that drive up used car prices, and policymakers expect these to resolve themselves over time. But there are big questions about how quickly supply chain issues will go away, and Fed policymakers are watching closely to ensure faster price increases don’t turn into a persistent trend.

“The longer this goes on, the harder it will be for ordinary families, small businesses and others to not adapt,” Raphael Bostic, president of the Atlanta Federal Reserve Bank, said in a phone call with reporters Monday. He noted that monitoring work, family and household expectations is important “to ensure that the length of this more turbulent time does not change expectations.”

“I can’t see it right now,” he added.

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