How Long Consumers Expect Inflation to Persist

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A New York Fed research paper said American consumers expect no relief from high prices in the near-term, believing the current bout of roaring inflation will keep percolating for the next twelve months before finally losing steam over a three-year horizon.

A new analysis from the New York Fed found that U.S. consumers polled about their future inflation expectations said they think prices will continue to trend higher over the coming year before falling and staying low.

“Respondents think the current high inflation environment will not fade over the next twelve months, but that it will taper off in the next three years and not persist beyond that,” the researchers wrote in a May 26 blog post that was co-authored by New York Fed President John Williams.

See also  Survey of Economists: Inflation Will Stay High This Year, and So Will Fed’s Key Interest Rate

Williams and the research team said that medium-term inflation expectations, which have a time frame of three years, appear to have leveled off.

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See also  Inflation Alert! Fed releases Inflation Expectations Fall at Short-Term Horizon but Rise Slightly at Longer Horizons. One-year (4.4%), 3year (2.9%), and 5-year (2.6%) inflation expectations all higher than the Fed's target of 2%. Inflation appears to be becoming anchored in consumers expectations.

“While short-term inflation expectations have continued to trend upward, medium-term inflation expectations appear to have reached a plateau over the past few months, and longer-term inflation expectations have remained remarkably stable,” the researchers wrote.

This comes after the most recent New York Fed Survey of Consumer Expectations found that inflation expectations over a three-year horizon rose in April by 0.2 percentage points to 3.9 percent after several months of steady declines, sparking concerns among some analysts of a fresh inflationary uptrend.


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