Consumers think inflation will slow … eventually
Consumers think inflation will slow … eventually
We are now in what some people at the Bureau of Labor Statistics refer to as “Inflation Week.” That’s because both the consumer price index and producer price index are coming out in the next few days. Those are readings on where inflation has been. Monday, we got a reading on where people think inflation will be: the November survey of consumer expectations from the New York Fed.
It found that consumers believe inflation will be about 3% a year from now, and even lower, around 2.6% in three years. That’s very similar to the way they looked before the pandemic.
“To me, this just seems like it’s all a return to normality,” said Alan Detmeister, an economist for UBS.
He said consumers tend to overestimate where inflation will be. They remember more when prices go up than when they go down.
That’s why they might be predicting that a year out, inflation will hit 3%, even though today, it’s around 2.6%.
But he said, if you look at their inflation expectations three years from now, consumers are expecting it to slow down.
“People are realizing we’re now starting to get wage growth that’s growing faster than inflation, and things are starting to turn around,” Detmeister said.
Consumers are also more optimistic about the future of the stock market, availability of credit and what they’ll earn.
Joe Gagnon, a senior fellow at the Peterson Institute said this is people feeling good about a good economy. Which means they don’t think as much about the old economy.
“The longer the economy stays good, over time, people will gradually forget that eggs used to cost, you know, much less,” he said.
Gagnon pointed out that Americans under the age of 50 haven’t really lived through an inflationary period like this before, so they’re kind of learning what to expect.
“We do know that after the inflationary ’70s, consumers came to accept the new price level and just moved on,” he said.
It’s almost like consumers have to move to the next stage of grief over the loss of those old prices, past denial, anger, all the rest, and eventually land at acceptance.
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