print-icon
print-icon

Fed Loses Control As Consumers Now Expect 10% Inflation For Key Staples

Tyler Durden's Photo
by Tyler Durden
Monday, Dec 13, 2021 - 07:26 PM

Another month, another record high in consumer inflation expectations.

While central banks, tenured economists and the financial media are doing everything in their propaganda power to convince ordinary  Americans (who don't have the privilege of charging their Federal Reserve debit card when shopping at the grocery store) that the current phase of galloping inflation - to avoid the far more dreaded "h" word - is merely transitory and is in fact, good for them as the following clown claimed overnight...

... the shocking reality on the ground is that the Fed has effectively lost control over near-term consumer inflation expectations, as the NY Fed's own most recent survey of consumer expectations reveals, something which even Powell tacitly admitted when he said it's time to retire the "transitory" inflation term.

According to the November installment of this closely watched survey, consumer inflation expectations for one year ahead hit a fresh all-time high for this series of 6.00% up from 5.65% in October. Median short-term (one-year-ahead) inflation expectations increased in November by 0.35%, the thirteenth consecutive monthly increase and a new series high since the inception of the survey in 2013.

And while the median 1 Year expected inflation rate was a "modest" 6.0%, the upper end of the 25%/75% dispersion range was a mindblowing 9.7%, meaning that at least 25% of respondents see inflation surging to nearly double digits! At the same time, 25% of respondents expect inflation to be at or below the "low, low" level of 3.0%.

Even more amazing is that consumers now expect prices for most key expenditures to rise by ~10% in the coming year. Among other things, consumers expect:

  • gasoline prices to rise 9.15%;
  • food prices to rise 9.24%;
  • medical costs to rise 9.6%;
  • rent prices to rise 10.03%.
  • The median one-year ahead expected change in the cost of a college education increased by 1.6 percentage points to 9.1%, its highest reading since March 2015.

Hilariously, the chart above also shows that while the price of virtually everything is expected to soar by around 10% over the next year, the price of gold - which everyone by now knows is manipulated by both banks, dealers and central banks - will underperform everything and rise just 5%.

That said, having clearly lost all control over the 1-year forward data point, the Fed release instead focused its last remaining powers of persuasion on the long-term inflation expectations, noting that "median three-year ahead inflation expectations decreased to 4.0% from 4.2% in both September and October. This is the first decline in the three-year measure since June 2021, and only the second decline since October 2020."

While that was good news, the not so good news is that the decline in medium-term expectations was driven by respondents without a college degree, meanwhile those who actually understand what's going on, keep pushing long-term inflation expectations higher. That's also why measures of disagreement across respondents (the difference between the 75th and 25th percentiles of inflation expectations) increased at both horizons to new series highs.

Remarkably, both the Fed's 1-Year and 3-Year inflation expectations are now far above those observed most recently in the UMich consumer sentiment survey, where the 1Y expectations are 4.9% while the 5-10 inflation expectations remain around 3.0%. Expect both numbers to keep rising in coming months.

There was more bad news in the report which found a general sense of unease and disappointment involving the broader economy:

  • The mean perceived probability of losing one’s job in the next 12 months rose to 13.0% from 11.0%
  • The median expected growth in household income fell to 3.2%, from its series high in October

There was more bad news as the median year-ahead home price change expectation decreased to 5.0% from 5.6%. The measure, which rose sharply during the Spring, is now at its lowest level since March 2021 (if well above its pre-pandemic February 2020 reading of 3.1%).

There was some good news as a smaller percentage of consumers, 10.02% vs 11.15% in prior month, expect to not be able to make minimum debt payment over the next three months.

Some other observations from the report:

  • Median one-year-ahead inflation expectations increased to 6.0% from 5.7% in October. Median three-year ahead inflation expectations decreased to 4.0% from 4.2% in both September and October. This is the first decline in the three-year measure since June 2021, and only the second decline since October 2020. The decline in medium-term expectations was driven by respondents without a college degree. Measures of disagreement across respondents (the difference between the 75th and 25th percentiles of inflation expectations) increased at both horizons to new series highs.
  • Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased at both the short- and medium-term horizons, with both reaching new series highs.

Labor Market

  • Median one-year-ahead expected earnings growth retreated 0.2 percentage point in November to 2.8%, from its series high in October. The decrease was largest for respondents with annual household incomes under $50,000.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased by 0.6 percentage point to 36.1%.
  • The mean perceived probability of losing one’s job in the next 12 months rose to 13.0% from 11.0% but remains well below its pre-pandemic reading of 13.8% in February 2020. The mean probability of leaving one’s job voluntarily in the next 12 months also increased to 20.2%, from 20.0%.
  • The mean perceived probability of finding a job (if one’s current job was lost) declined to 55.9% from 56.6%, but remains well above its 12-month trailing average of 51.9%.

Household Finance

  • The median expected growth in household income fell by 0.1 percentage point from its series high in October, to 3.2%.
  • Median year-ahead household spending growth expectations jumped up by 0.3 percentage point to 5.7%, a new series high. The increase was largest for respondents with annual household incomes under $50,000.
  • Perceptions of credit access compared to a year ago deteriorated slightly in November, with fewer respondents finding it easier to obtain credit now than a year ago. Expectations about future credit availability deteriorated as well, with fewer respondents expecting it will be easier to obtain credit in the year ahead.
  • The average perceived probability of missing a minimum debt payment over the next three months decreased by 1.1 percentage points, to 10.0%, which is slightly below the 12-month trailing average of 10.2%.
  • The median expectation regarding a year-ahead change in taxes (at current income level) was unchanged at 4.7%.
  • Median year-ahead expected growth in government debt decreased 2.1 percentage points to 12.5%, its lowest reading since December 2020.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now increased to 28.7%, from 27.0%.
  • Perceptions about households’ current financial situations compared to a year ago deteriorated in November, with more respondents reporting being financially worse off than they were a year ago. Respondents were also more pessimistic about their household’s financial situation in the year ahead, with fewer respondents expecting their financial situation to improve a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 0.5 percentage point to 39.1%, the first increase since April 2021.

Finally, one for the market: perhaps failing to realize that stagflation pressures are rising, the mean perceived probability that U.S. stock prices will be higher 12 months from now rose modestly to 39.1%, from 38.5%, which was tied for the lowest in 2021.

Source: NY Fed

0