Consumers See Inflation Moderating Longer Term, but Gird for Short-Term Price Pressures

The latest reading on consumers’ expectations about inflation — where it’s headed one year from now, three years from now, five years from now — has some good news, and some less good news.

On the positive side, expectations are that inflation’s going to tick down over the longer term at the least at the three-year mark, where the latest survey has declined to the lowest levels seen in quite a while, according to the July 2024 Survey of Consumer Expectations released by the Federal Reserve Bank of New York’s Center for Microeconomic Data on Monday (Aug. 12).

The less than sanguine news is that for the near term — the here and now, and for the immediate purchasing decisions and short-term planning for the next 12 months — well, inflation expectations are unchanged, which means that households are eyeing pricing pressures that look set to remain intact.

At the one-year mark, consumers expect inflation to remain stable — at 3% — and have said that five years from now, inflation is set to be 2.8%, which is also where previous readings had held that metric.

The three-year horizon shows a notable dip, as median expectations see a 0.6% slide to 2.3%, a series low since the Fed started these consumer surveys more than 11 years ago.

But three years, and certainly five years, may seem a long way away, given the fact that earnings growth is expected to be 2.7%, which is down 0.3% from the previous estimate. In other words, prices look set to rise through the next year more quickly than wages, which in turn may be driving median household spending growth expectations to slip a bit — by 0.2 percentage point — to 4.9%, the measure’s lowest reading since April 2021.

Stocks were mixed in intraday trading on Monday, with the Dow down a bit and the broader S&P 500 Stock Index rose slightly.

Debt Pressures Still in Evidence

The increased debt loads that have been documented in recent reporting, and a boost in card balances hitting delinquency status are now showing up in expectations of what’s to come. The average perceived probability of missing a minimum debt payment over the next three months increased by 1.0 percentage point to 13.3%, the measure’s highest reading since April 2020.

“The increase was most pronounced for those with an annual income below $50,000 and those with a high school degree or less education,” said the Fed. PYMNTS has reported that 1 in 10 U.S. consumers have an annual income of $50,000 or less, live paycheck to paycheck and say they have issues paying their monthly bills — and represent 8% of consumer spending.

The Fed’s Monday report comes right as PYMNTS Intelligence has noted that 7 in 10 consumers believe that their income has not matched inflation. As a result, from groceries to retail, many consumers are trading down.