U.S. Long-Term Inflation Expectations Rise
Consumers expect prices to climb 5% over the next year, and at an annual rate of 2.9% over the next 5 to 10 years.
U.S. long-term inflation expectations picked up in October, in a potentially concerning sign for the Federal Reserve as it tries to keep price views steady.
In the final October reading from the University of Michigan, consumers expect prices to climb at an annual rate of 2.9 percent over the next 5 to 10 years, compared with last month’s 2.7 percent. And they see costs rising 5 percent over the next year, up from 4.7 percent in September, data showed Friday.
This change in short-term expectations stems in part from higher gas prices in the month, the report said.
The university’s sentiment index increased this month to 59.9, the highest since April. The current conditions gauge also advanced in October, to a six-month high, while a measure of expectations dropped to a three-month low.
Buying conditions for durable goods, such as cars and appliances, improved based on easing supply-chain constraints and lower prices. However, consumers who responded to the current survey are more pessimistic about the nation’s business outlook.
“These divergent patterns reflect substantial uncertainty over inflation, policy responses, and developments worldwide—and consumer views are consistent with a recession ahead in the economy,” Joanne Hsu, director of the survey, said in a statement.
The University of Michigan report shows a sharp divide along partisan lines in the university’s last reading before the November 8 midterm elections. While sentiment among Republicans remains much weaker than that of Democrats, it improved to the highest level since April. Independents also registered a six-month high in sentiment. Meantime, Democrats were less upbeat in October.
President Joe Biden and Democrats have been hoping for good news on the economy, as high inflation and recessionary fears have dragged down the party’s chances of holding onto its thin congressional majorities.
That looks increasingly challenging, especially as price pressures are still spreading rampantly throughout the economy. Separate data Friday showed a key gauge of inflation watched by the Fed accelerated in September, while consumer spending proved resilient. Meanwhile, a measure of labor costs rose at a brisk pace in the third quarter.
—With assistance from Jordan Yadoo.
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