Fed Says Consumers See Higher-for-Longer Inflation

Consumers are girding for inflation to settle in over the long haul.

But they intend to keep spending.

As reported on Monday (May 13), the  Federal Reserve Bank of New York’s Center for Microeconomic Data detailed that, per the April Survey of Consumer Expectations, inflation’s expected to be higher one year from now, slightly lower at the three year mark, and then higher than had been seen previously for the five year horizon.

Inflation is now envisioned by these consumers to be at 3.3% from March’s 3%. Inflation three years from now is to be slightly tempered to 2.8%, where in March that pace had been estimated at 2.9%.  Five years out, inflation’s estimated to be  2.8%, versus March’s 2.6%.

In the meantime, households expect to see spending growth of 5.2% in the year ahead, quickening slightly from 5% in March.

But there are some mixed signals here: The data showed that the consumers who say they will be “much better off” financially one year from now dipped from 5.4% in March to 4.4% in April, the folks who think that things will be “about the same” was about a percentage point higher. But the percentage of people who think they will be “much worse off” ticked up to 5.5% from 2.8% in March.

More Consumers At Risk of Missing Debt Payments 

According to the data, 12.9% of respondents said in April that they saw themselves not being able to make a minimum debt payment, the same level seen in March, and that’s up from 10.7% a year ago. Only about 11% of respondents said that credit would be easier or at least somewhat to obtain, down from nearly 12% in March.

Wages and jobs may be no panacea. Only about four in 10 consumers anticipate a wage increase this year, down from 43% who expected a raise in 2023. The share of consumers who think they can secure a new job that meets their salary needs is down from 50% in 2023 to 43%.

The Fed found that the year-ahead inflation expectations for certain expenditures were 0.2% point higher for food to 5.3% and 0.4% for rent to 9.1%.

Median expected growth in household income declined by 0.1 percentage point to 3.0%.

The confluence of all these different data points indicates the push/pull pain points that may become rather acute: Consumers are a bit warier about missing debt payments. They see growth in take home pay slowing. Inflation’s going to be higher.

PYMNTS Intelligence’s own survey of inflation expectations into 2024 noted that a significant percentage of consumers were adjusting their spending — as more than 56% of individuals anticipated higher retail prices through 2024. In January, 63% of shoppers reported cutting back due to price increases, down from 69% last year. By the same token, 51% of shoppers said they switched to different merchants to save money.