Consumers think inflation still has to boil over before it cools, according to the Federal Reserve Bank of New York’s latest read on people’s economic expectations. Inflation hit 9.1% on the year in June, a 41-year high, which was higher than either economists or inflation-derivatives traders had expected.
People seem to think the fever of four-decade-high inflation is breaking, but it could take a while. Consumers said they expect inflation to come down to 3.6% in the next three years, according to the New York Fed’s ongoing Survey of Consumer Expectations, which was released ahead of Wednesday’s Consumer Price Index. Analysts remain skeptical. Chris Zaccarelli, chief investment officer of Independent Advisor Alliance in Charlotte, N.C., said, “To the extent that we keep seeing elevated inflation prints — e.g. especially over 8%, but anything at 4% or higher — the Fed is going to have to be more aggressive” with its rate-hike plan. Rusty Vanneman, chief investment strategist at Orion Advisor Solutions said, “Peak inflation will have to wait.” More immediately, consumers think the housing market will cool somewhat. Though survey participants think home prices are still going to be rising, they think the anticipated growth will not be as sharp, they said. Consumers said they expected home prices to increase an estimated 4.4% in the coming year, survey participants said. That’s down from the 5.8% annual home price increase they predicted in the last survey, and researchers said it’s the lowest expected rate on the question since February 2021. Last week, average rates on the 30-year mortgage slipped to 5.3%, amid worries of an economic slowdown. While investors, analysts and policymakers digest the latest data, there are some signs of cooling prices on consumer goods. The prices on used cars appear to be normalizing, Goldman Sachs
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