The Fed's Inflation Survey That The Fed Would Rather Not Hear

Tyler Durden's picture

U.S. consumers think one-year domestic price inflation will run 50-100% higher than the current headline Consumer Price Index that Wall Street uses to value financial assets. That surprising finding doesn’t come from the fringe "Inflation is nigh, repent!" camp; as ConvergEx's NBick Colas points out, it is the central observation of the New York Federal Reserve’s Survey of Consumer Expectations. This relatively new but rigorously designed monthly dataset polls 1,200 American households on a range of financial questions, from inflation expectations to household finances and labor market conditions. The news The Fed is hearing from the survey must be a bit tough to hear. Inflation expectations are significantly higher than their "Target" of 2% already, meaning any acceleration in prices will "Feel" higher than the central bank’s notional goals.

Via ConvergEx's Nick Colas,

...Less than a third of respondents expect higher interest on their bank deposits over the next year, they expect home price to rise 4% over the same period and food/college expenses to rise 5% and 8%, respectively.

There’s more to inflation than meets the CP-eye...

If the Age of the Internet has a philosophical cornerstone, it may well be engraved: “People like to talk.  About themselves.  About others.  About anything.  So let them talk”.  The Facebook post, the tweet, the Instagram picture, the Buzzfeed questionnaire…  Self-expression is the Lake Victoria of Web 2.0’s Nile River of content.  And everyone from the White House (online petitions) to the U.K. prison system ( leverages technology to engage a broader – and chattier - population.
And while they might be slightly late to the party, the New York Federal Reserve is now using the Internet to help with the U.S. central bank’s efforts to understand consumer inflation expectations. No, it’s not quite as exciting as a “Which Disney princess are you?” survey on Buzzfeed, but the outcomes from this effort are (hopefully) more relevant to society as a whole. It is called the Survey of Consumer Expectations – here is a brief historical summary of the effort:

In the fall of 2007, the NY Fed began studying ways to improve their understanding of consumer expectations. They worked with everyone from the RAND Corporation to other Fed branches and psychologists that specialize in survey design. Their three areas of focus were household finance, labor and inflation expectations, all through the lens of “Real world” household surveys.


Researchers settled on a monthly Internet survey of about 1,200 households, each of which received $15 for completing a questionnaire. The NY Fed sees about a 60% response rate for new participants and an 80% rate for repeat respondents. The survey uses a rotating panel of survey takers to maintain some much needed month-to-month continuity.


The survey consists of a repeating set of questions as well as special non-repeating topics. The items which appear every month include queries on household expectations for: future inflation, wage growth, home prices, various critical commodities, household income and spending, taxes, credit access and job search.


This month will mark the one-year anniversary of the dataset public history.  There are several links at the end of this note if you would like to see more details about the survey and download the detailed data.

As you cull through the results of the NY Fed’s new foray into Internet surveys, the first thing that strikes you is just how different the results are from common Wall Street wisdom about critical issues like inflation and interest rates. Granted, there are only 11 months of data so far, and this is a new effort.  But still…  Consider the following points:

According to the May data (last available) for the Survey of Consumer Expectations, respondents believe one-year inflation will run 3.2% to 4.3%.  Those are the median and point estimates – the survey question here is structured as a set of probabilities for 0-2% future inflation, 2-4%, and so forth. For reference, the last Consumer Price Index readings were 1.9% (Core) and 2.1% (Headline), and the May Personal Consumption Expenditures Price Index was 1.8%. Essentially, consumers in this survey either see inflation up 50% to +100% higher in the next 12 months, or they simply feel that current government inflation data underestimates their current inflation rates. Or both, of course…


In a June 24, 2014 speech on the survey, the research head at the NY Fed James McAndrews discussed this dichotomy. One reason given: the “high right tail” created by select respondents – in other words, the propensity for some of the surveyed population to give answers that are much higher than the average. The answer to this problem: “Public information campaigns” to get the truth out.  When you look at the demographic details of those respondents who generally estimate higher levels of future inflation, you see that they tend to have lower levels of educational achievement. That means they, statistically speaking, probably have lower incomes. Another explanation for the “Right tail” respondents therefore falls to hand: they feel the whipsaws of food and fuel inflation more than higher income households. It may not be an information issue, in other words, for a lower income household simply feels higher prices for necessities more acutely than one with greater resources.


The NY Fed survey also surveys other useful measures of consumer expectations, such as the survey set’s estimate of future appreciation in house prices. Here, the respondents are fairly optimistic, with a consensus estimate of 4.0% as of May 2014.


The two cost items that consumers seem most concerned about are medical care and college education. The forecast price increases over the next year are: medical care: 9.5% and college cost inflation: 7.9%. The other items in the NY Fed survey are rent, gas and food – all forecast by the survey respondents to run between 4.6% and 6.0%. Again, these components are ones more keenly felt by lower income households as they make up a greater percentage of their typical monthly budget.


On the issue of wage growth, the population in the NY Fed survey has grown more cautious in recent months. Hopes for 2.4% growth earlier in 2014 have given way to 2.0% in the May results.  Interestingly, this is not due to greater job insecurity. Estimates by the survey respondents of losing their job involuntarily remain at 16.5%, essentially unchanged from the beginning of the year. Since this is a fairly new dataset there is no color on how the population felt in 2007, or during the housing boom of the mid-2000s.


A total of 14.2% of those answering the NY Fed’s online survey thought there was a chance of their not being able to make a minimum payment on their outstanding debt burden. That is down from the 17.2% of respondents who answered that question in September 2013, but still represents one in seven households who answer the questionaire.


Only 28.6% of households in the survey feel that they will be able to earn higher rates on their savings in a year’s time. Clearly, low interest rates have had their intended effect of convincing savers that they must invest their money in capital markets to achieve a return higher than inflation. But the recent Fed chatter about raising short-term interest rates hasn’t yet filtered through to the population as a whole.


Survey respondents estimate one-year wage growth at just 2.3%, well below their estimates of future price inflation. That’s a telling answer for a host of reasons. First, it helps explain the choppy economic recovery of the last year, winter weather notwithstanding. Consumers who expect a lower quality of economic life in the future are not ideal candidates for higher spending. It also speaks to why economic growth is likely to remain muted in the future.

In short, you have to give the NY Fed an immense amount of credit for the Survey of Consumer Expectation, and not just for embracing the technology of online surveys. The news they are hearing from the survey is a bit tough to hear. Inflation expectations are significantly higher than their “Target” of 2% already, meaning any acceleration in prices will “Feel” higher than the central bank’s notional goals. How that plays out in the coming years will be hard to ascertain. Still, the inclusion of rigorous consumer-based surveys is clearly a step in the right direction.

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Aaaarghh's picture

well tell us something we dont know..

max2205's picture

Yeah more money wasted by the gubermint

Pinto Currency's picture



The Fed knows they are using false inflation data and know the work at

What they do not want to do is acknowledge it publicly.

This is a game of deception for them.

Supernova Born's picture

Food price inflation is what brings the folks to the streets across the globe.

Can't deceive a rumbling stomach.

Supernova Born's picture

Sawdust bread and long pork will soon be the substitutes used in CPI calculations.

Rational people make rational choices when they're hungry.

Boris Alatovkrap's picture

Bankster class is endeavor for hiding of real inflation because is hiding re-hypothecation fonzi scheme. Perpetual re-calibration of CPI parameter is trickery to keep academic economist and driving by media personality distraction filled, but end game is everyone is feel inflation and instability. Amerika is quickly lock up abuser of substance and vocal resistance, but is never lock up true thief of wealth of nation.

plane jain's picture

Sawdust bread is already around.  $1.29 for honey wheat with cellulose at my local Aldi.  Low carb and no HFCS.

yogibear's picture

Of course they know. It's a bluffing game for them.

They know from their own survey that inflation is a lot hotter.

LawsofPhysics's picture

Yes, with exponentially more liabilities and exponentially less resources.

Good thing oligarchs are much more efficent at killing people these days...

hedge accordingly.

BandGap's picture

What really fucks me up is that they are not going to believe their own survey. But that was never the intent anyway. The solution -"The answer to this problem: “Public information campaigns” to get the truth out." Whose truth? The truth people see and feel every day? Or the "truth" we are supposed to believe despite what we see and feel every day?

This survey isn't an attempt to gauge a fucking thing EXCEPT where they need to wratchet up the propaganda. How dare any sector of the populous think differnetly than the FED mantra.

Think about it, these fucking polls are nothing more than looking for areas (demographics, geographical, economic) to apply more paint.

Sheep are fools.

Cthonic's picture

They can't raise rates, so they must make us believe inflation is low.  Don't worry, they won't bother with such 'surveys' and jedi prestigiation once they move on to more efficient feedback mechanisms, like mandatory neural implants.

El Vaquero's picture

It's a crack in the USD.  People are starting to catch on that shit is cheaper today than it will be tomorrow.  Once that realization fully hits home to the slobbering masses, watch out!

TeamDepends's picture

No need to worry about inflation unless you buy food and/or energy.

Shizzmoney's picture

Or rent.  Healthcare.  Tuition.

But the data is "noisy".

If this keeps it up, the "data" won't be the only thing that is noisy.

Handful of Dust's picture

Continued Stagflation is what I see.

CCanuck's picture

I can't hear a fucking thing its soooooo fuck'n noisy here....but I can see the Fed is Fucking us.

yogibear's picture

Through both eye sockets.

Jack Sheet's picture

Yeah I love the way they intentionally fuck up statistical definitions

noise = random variability or error; random deviations around a reference value that average out to zero.

systematic variability or error = deviations from a reference value that do not average to zero

pelican's picture

At this point, i am so beaten down, I don't give a shit. I am just once of the people that have been declared a serf and I see no way out of it.



buzzsaw99's picture

There was an old woman who lived in a shoe.
She had so many children, she didn't know what to do;
She gave them some broth without any bread;
Then whipped them all soundly and put them to bed.

NoDebt's picture

I thought the last line was "Then she kissed them all sweetly and put them to bed."

Oh.... wait.... I get it.

NOTaREALmerican's picture

Come on, there's no inflation for the top 10%.    Food goes up,  the portfolio goes up.    It all comes out in the wash.    We're not really worried about what the Trash Class thinks, are we?  

Supernova Born's picture

Top .01%. The top 10% as a construct is disinformational hogwash. A mere 140,000 puts an entire household in the "top 10%" in the US.

The .01% Banksters hide among the rest of the 9.99% of the "top 10%" like wolves among sheep.

...and the middle class is the trash class to the .01%ers.

i_call_you_my_base's picture

I don't see how any average person could make an educated guess about inflation, particularly when the difference is a few percentage points.

"How much more interest do you think you'll make on your savings next year?"

The standard answer would be: 1) what savings?, but anyway, 2) who fucking knows?

NOTaREALmerican's picture

Actually, the annual rate of increase in optimism is roughly 2 or 3%.   This is why The Fed tries to keep inflation at this range, as the pathologically optimistic Mericans won't notice.  So,  if the fed notices Merican optimistism increasing they'll be able to increase the rate of inflation and nobody will notice.  

Those guys are good.  

(Dude,  my kid is above average and my dog is too!)

i_call_you_my_base's picture

True, but no one believes the inflation figures anyway. If you ask anyone if they think their cost of living has been going up 2% per year they will laugh at you. Your dog too.

buzzsaw99's picture

Old Mr Yellen
Went to the cupboard,
To give the poor dimon a bone;
When she came there,
The cupboard was bare,
And so the poor dimon had none.

She went to the baker's
To buy him some bread;
When she came back
The dimon was dead!

She went to the undertaker's
To buy him a coffin;
When she came back
The dimon was coughing.

She took a clean dish
to get him some tripe;
When she came back
He was smoking his pipe.

She went to the alehouse
To get him some beer;
When she came back
The dimon sat in a chair.

She went to the tavern
For white wine and red;
When she came back
The dimon stood on his head...

moneybots's picture

"According to the May data (last available) for the Survey of Consumer Expectations, respondents believe one-year inflation will run 3.2% to 4.3%."


People should stop discretionary spending and save money to pay for the higher cost of needed things.

i_call_you_my_base's picture

Nah, that's what credit is for, to bridge the gap of what your wages cannot support.

NOTaREALmerican's picture

Well, there are more of those "take out a second mortgage on your car 'equity'" ads.  

Handful of Dust's picture

Inflation is for the little peeple.

RaceToTheBottom's picture

Infation makes little people.


There fixed it for you, or at least added a fold to it for you.

juggalo1's picture

I disagree with this article.  Taking a percent of a percent change is incorrect math.  To say a inflation increases will be 100% more than expected, when in fact the difference is 2% vs 4% is wrong and intentionally misleading.  The Fed will not be concerned if inflation is at 3%.  When it hits four they probably will take action.  People expecting that it might hit 4 is a blurb.  If people expected it to hit 8%, the Fed might be concerned, but 2% v 4% is less of a concern than 2% v. 0% which is what is happening in many areas of the world.

Jack Sheet's picture

Look at it this way: the loss in your purchasing power at 4% inflation will be double the loss at 2% inflation.

flash338's picture

Till you start compounding it...

astoriajoe's picture

Janet just got a new pair of Bose Noise cancelling headphones, so its all good.

might make a nice Banzai image.

Al Capowned's picture

Peak noise, she should come out and talk in a pair of Dre's 'Beats'

Yen Cross's picture

   It's been my general observation that people generally try to paint a prettier picture of themselves when asked about financial matters. With that in mind, I would probably raise the figures of expected inflation by one standard deviation at least.

  The .gov cocksuckers will undoubtedly do just the opposite and push people until the explode violently in the streets... That's how .gov rolls.

Minuteofangle's picture

So let's be clear here:

1.) The NY Fed can "discern" between lower educational attributes from an internet response? I do understand if the respondents describe their educational levels, but if you can use the internet and are responding to a FED survey, you are probably in the top 20% of citizenry.

2.) While on a percentage basis,  a lower income respondent might see a % increase in fuel or food in a larger contextual prizm, but in absolute terms don't all consumers have the same "cash-flow" differentials for every dollar expenditure in core products like rent, food and fuel?

3.) When will the illustrious FED create a "respondent" survey for average citizens on TBTF, HFT, QE and insider trading by congerssional staff ?


KenShabby's picture

The Fed has never given a fuck about the little guy so why should it start now? 

NOTaREALmerican's picture

The little guy has never cared about the little guy,  why should the Fed?

RaceToTheBottom's picture

The FED cares a lot about the little guy, that is why the FED is designed to make so many of them.

Ranting Troglodyte's picture

I'm just impressed that they can find so many households that can calculate percentages.

Cthonic's picture

So, these guys are paid $15 for answers, and if they provide the 'correct' ones, they're invited back to take the survey again.  And if their answers show them to be in the fat tail, they're booted to the curb. Brilliant.

quasimodo's picture

Well, that is really odd. I got a 3% raise, and inflation is 2%, yet I have less and less leftover. What am I doing wrong?


dr.charlemagne's picture

Tyler, I believe that the importance of inflation expectations relates not to how inflation will "feel" but to a self fulfilling prophesy. That is, if I expect inflation, I will choose to spend money now rather than wait. This choice increases the velocity of money which in turn actually causes inflation by increasing the apparent volume of money in the economy. Right?