Inflation Levels Across Unites States Expected to Surge to Another Record High: Federal Reserve Survey

November 9th, 2021

Awake Goy

Inflation levels across the United States are expected to surge to yet another record high, according to the Federal Reserve Bank of New York’s latest monthly Survey of Consumer Expectations (SCE) published on Monday.

The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. The report is based on a rotating panel of 1,300 households, and respondents participate in the panel for up to 12 months.

As per the survey, the median expectation is that the inflation rate will be up 5.7 percent one year from now, a 0.4 percentage point jump from the previous month, which also marks the highest level for the gauge since its launch in June 2013.

The October increase marks the 12th consecutive increase and was most pronounced among respondents who have at least a college degree and for people between the ages of 40 and 60.

After increasing for three consecutive months, median inflation expectations over the next three years remained unchanged at a median of 4.2 percent in October.

“Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased at both the short- and medium-term horizons. Both measures reached series highs in October,” the survey said.

Expectations for higher prices in the year ahead covered all of the commodities considered in the survey, with the exception of medical care.

Americans look set to pay steeper rents too, with the median expected change in the cost of rent increasing by 0.4 percentage points to 10.1 percent, marking a new series high.

Meanwhile, gas prices are also set to rise, with the one-year expected change in the cost of petrol rebounding to 9.4 percent in October from 5.9 percent the month prior.

The cost of college education and food are also expected to rise in the year ahead, with the survey noting the median expectation for prices there jumping by 1.5 and 2.1 percentage points respectively to 7.4 percent and 9.1 percent in October.

When it comes to the cost of medical care, the median expected change remained the same.

Overall, median household spending growth expectations increased by 0.4 percentage points to 5.4 percent, again reaching a new series high. The increase was most pronounced for respondents with no more than a high school degree and for those with annual household incomes of less than $50,000.

However, Americans are also set to see their household income growth increase, with the median expected year-on-year increase at 3.3 percent in October, up from 3.0 percent in September. The increase was broad-based across age and income groups.

According to the ADP Research Institute Workforce Vitality Report (WVR) released Oct. 27, third-quarter wages in the United States increased 3.3 percent, in line with growth in the months before the COVID-19 pandemic, while job switchers’ pay is up 6.6 percent since September 2020, as employers sought to attract new workers with competitive compensation.

The most significant wage growth was seen in employees aged 24 or under and workers over the age of 55, which ADP notes could be due in part to those age groups rejoining the workforce post-pandemic.

The Federal Reserve Bank of New York’s latest report comes after Fed Chairman Jerome Powell in a September press conference attributed rising inflation to supply chain issues, hiring difficulties, a labor shortage, and the COVID-19 pandemic, among other issues.

“Inflation is elevated and will likely remain so in coming months before moderating. As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly because supply bottlenecks in some sectors have limited how quickly production can respond in the near term,” Powell said.

“As the reopening continues, bottlenecks, hiring difficulties, and other constraints could again prove to be greater and longer lasting than anticipated, posing upside risks to inflation,” Powell said, adding that “continued progress on vaccinations would help contain the virus and support a return to more normal economic conditions.”

The Fed chair also repeatedly maintained that inflation is likely “transitory.”

Last week, the central bank said it will begin pulling back on its monthly bond purchases by $15 billion a month in mid-November with plans to end them in 2022.