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Inflation Expected to Reach Five Percent, Warns NY Federal Reserve

Such a rise would mark an all-time high since the data has been collected in the Survey of Consumer Expectations.

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The New York Federal Reserve released this Monday their August 2021 Survey of Consumer Expectations (SCE), showing that both the short and medium-term expectations of continued inflation remain fairly high, with the expectations of one-year inflation recording a new “series high” since the NY Federal Reserve began tracking inflation expectations in the SCE in 2013.

According to the data from the survey, which analyzes the data of approximately 1,300 households nationwide, respondents expect a 5% general rise in prices within the next calendar year, with that number falling slightly to 4% when respondents asked about their inflation expectations over the next three years. To put these numbers into context, the previous all-time high of the inflation expectation index was back in August 2013, when the short-term inflation expectation index was 3.4% and the long-term number was 3.8%.

The data from the Federal Reserve also shows that inflation uncertainty, which measures the uncertainty of the respondents about future inflation levels, has reached new highs with the Survey showing a 4% and 3.8% in the short and medium-term inflation levels respectively. Since this data has been collected by the Federal Reserve, the United States has usually remained between the 2-3% mark of inflation uncertainty.

inflation-fed
The report comes after months of reports showing rising inflation in the U.S. (EFE)

Although both measurements are not an ironclad prediction of how much prices would rise over the next few months (as such thing is impossible to know), they are definitely important to get a perspective of how much would price rise in the future, as actual inflation is partly driven by how much people expect prices to rise in the future.

Economy creates less jobs than expected

The announcement by the Federal reserve comes after months of continued inflation, and at the same time as the Democratic Party plans to pass a massive $3 Trillion budget through Congress, which has reportedly included a hike to corporate tax to 26.5%. The financial market has had a lukewarm response to this latest data, with the S&P 500 losing 0.06% and NASDAQ reporting a 0.21% loss.

The New York federal reserve announcement comes a day before the U.S. Bureau of Labor Statistics is set to announce their monthly report on consumer prices. The inflation in the U.S. over the last few months have remained fairly high (for American standards) with the monthly report of the BLS showing a 4.2% increase (compared to last year) in April, 5% rise in May, and a 5.4% increase in both June and July.

The Federal Reserve would have to decide how to best tackle the prospects of continuous inflation (EFE)

The bad news on the inflation front has also been accompanied by disappointing figures on unemployment. With the BLS showing a disappointing rate of jobs created last August, as only 235,000 new jobs were added to the economy, a number that falls far below the experts’ forest of more than 750,000 added jobs for the month. As of today, the economy has yet to recover completely from the number of job losses due to the COVID-10 pandemic, with the August unemployment rate at 5.2%, a number that is below the pre-pandemic 3.5% of February 2020.

The combination of inflation and a disappointing job recovery would surely create headaches over the Biden White House, as more Americans have started to turn against the President after the botched American retreat in Afghanistan.

Recent surveys, like one conducted by YouGov/The Economist, indicate that the economy is considered to be very important issues by a vast majority of Americans, with 93% thinking is either a very or somewhat important issue. The survey also shows that most Americans do not approve of Biden’s job over the economy, with 47% of respondents disapproving of the way the president is handling jobs and the economy.

With a Democratic White House desperate to recover its lost popularity, the latest economic indicators are surely not the news that the President is hoping to receive.

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