US consumers’ long-term inflation expectations dip to lowest since mid-2021

CONSUMERS expect prices will climb at an annual rate of 2.8 per cent over the next five to 10 years, the lowest since July 2021, according to a survey from the University of Michigan. They see costs rising 4.6 per cent over the next year, the lowest since last September, data on Friday (Sep 16) showed.

While fewer consumers mentioned supply shortages and gas prices are falling, other measures of inflation are still accelerating and widespread, such as costs for food and shelter. Consumer prices rose by more than forecast in August, according to data released earlier this week.

“As conflicting information about prices continues to fuel consumers’ uncertainty, inflation expectations are likely to remain relatively unstable in the months ahead,” Joanne Hsu, director of the survey, said in a statement.

Even with the drop in inflation expectations, consumers aren’t much more upbeat about their financial prospects. About 42 per cent of consumers still cite high prices as eroding their living standards, down from a peak of 49 per cent in July.

The Fed is trying to curb demand across the economy to stomp out inflation, and most expect the central bank to raise interest rates by another 75 basis points next week. Retail sales data suggest consumer demand for goods broadly held up last month but showed signs of moderating.

Buying conditions for durable goods, such as cars and appliances, remain near an all-time low, the university said.

Still, lower gasoline prices are giving Americans more to cheer about. The current conditions gauge rose slightly to 58.9, the highest since May. A measure of expectations increased to 59.9 this month, the highest since April.

The University of Michigan’s preliminary sentiment index also climbed to the highest since April, with a reading of 59.5.

Also helping to power sentiment is a strong labour market, marked by robust job creation and low unemployment. Applications for jobless benefits fell for a fifth straight week, according to Labor Department data out Thursday, suggesting demand for workers remains healthy despite an uncertain economic outlook.

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Inflation expectations as measured by the New York Fed and a Bloomberg survey of economists are also trending lower. Those figures, taken together with the Michigan report, might give the Fed some comfort as such views can become a self-fulfilling prophecy. BLOOMBERG