Consumer inflation expectations have crept up over the past six months. A University of Michigan survey in June found consumers thought a year from now price levels would rise roughly 5%. That is well above the actual 2.4% inflation reading last month.

If consumers believe the price of a car or washing machine will be significantly higher a year from now, the economically rational response is to buy that car or washing machine today.

And while they’re at it, they might also think about asking for a raise.

That kind of thinking matters, said Brian Coulton, chief economist at Fitch Ratings.

“Inflation expectations matter because they affect people’s behavior,” Coulton said. “So, they will affect the willingness of workers to carry on working with a given level of wages.”

When consumers buy more now in anticipation of higher prices — and workers demand higher pay — it can lead businesses to raise their own prices to cover increased costs. That creates what economists call a self-fulfilling inflationary cycle, something the Federal Reserve works hard to avoid.

What’s puzzling, though, is that while inflation expectations have been rising this year, actual inflation readings have remained relatively stable.

Economist Yuriy Gorodnichenko at the University of California, Berkeley, said people are still haunted by the sharp inflation surge that followed the COVID-19 pandemic.

“Everybody was scarred by, you know, recent inflation surge,” Gorodnichenko said. “They think, you know, high inflation can happen. It's a realistic scenario.”

Even if recent tariffs or oil price jumps haven’t had a major impact on prices — at least, not yet — the memory of past inflation seems to be shaping how people behave today.