How U.S. Inflation Expectations Are Being Shaped by Consumer Choices

Economic policymakers are very focused on inflation expectations after more than a year of sharp price increases. Explain what consumers think about rising costs.

Inflation began in the bacon corridor of Dunbarnet, a 58-year-old former medical center manager in Margaretville, New York.

Last summer, he began to notice a sharp rise in standard breakfast prices, jumping from $ 8 to $ 10 per pack at a local grocery store. Over time, a wide variety of foods became more expensive — so many, he began driving 45 miles to shop at Aldi and Wal-Mart, hoping to win better deals. Inflation seems to have hit the ground this summer, pushing up prices for brake repairs, hotel rooms and McDonald’s french fries.

“My biggest fear is that they can’t control it, and that it just lasts,” Burnett said. He is wondering how the future of public finance must be reshaped in a world where prices, which had been rising for a long time at an annual rate of less than 2%, are now rising considerably.

People like Mr Burnett, who are beginning to believe that US prices may continue to skyrocket, are the greatest fear of the Federal Reserve. If consumers and businesses expect rapid inflation to be a permanent feature of the US economy, they may begin to change their behavior in ways that cause prices to continue to rise. Consumers may start accepting price increases without shopping, workers may demand higher wages to cover rising costs, and businesses to cover their higher labor bills And because I think customers get angry with higher price tags, they may raise the price.

economist Often blamed The idea of ​​such spiral inflation to foster the sharp rise in prices in the 1970s and 1980s was a painful episode that turned out to be difficult to control. As a result, the Fed, which is in charge of controlling inflation, has focused on various inflation expectations, hoping that high-priced psychology will not take hold.

Most signs suggest that people still believe that inflation will decline over time.But the interpretation of inflation expectations is more art than science: economists Disagree About important indicators, how to measure them, and what might change them. And after more than a year of sharp price increases, central bank officials are increasingly worried that it is foolish to take stability in price expectations for granted. Authorities are rapidly raising interest rates to cool the economy and let the public know that they are serious about raising prices.

“There’s a clock here, and inflation has been going on for over a year,” Fed Chair Jerome H. Powell said recently. “Assuming these long-term inflation expectations remain fixed indefinitely in the face of sustained high inflation would be bad risk management, so we do that. Is not.”

Central bankers are closely watching measures, including the University of Michigan Long-term inflation A prospect survey trying to determine if expectations are obscured. They have risen since 2020, but not as much as real inflation. Still, these trackers only show where today’s expectations are. They say little about when and what will change.

To get a more detailed and qualitative understanding of what consumers think about inflation, the New York Times asks readers what costs are coming to them and how much inflation they expect. , And asked how they formed that opinion. The bottom line: Many people still expect inflation to ease over time, but that assumption is fragile because many Americans are experiencing the fastest inflation in adult life with a wide range of products and services.

Food and gas prices weigh heavily on the hearts of many, Consistent with the study How consumers shape price forecasts. However, the specific products that raise the eyebrows are very different and go beyond food and gas.

Guitars, rents and pedicures are expensive in California. Craftsmen’s crafts are commanding higher prices in New Mexico.

People deal with mountaineering costs in different ways. Many said they were cutting consumption. This can help mitigate inflation by reducing demand and giving it the opportunity to catch up with supply. Some continued to buy, hoping that costs would ease over time. But others were trying to find other ways to cover the cost of climbing, seeking more wages or resigning from rising prices.

For 37-year-old Siamac Moghaddam in the Navy and living in San Diego, dealing with inflation is not about reducing small things like pedicure that he enjoys getting because he always wears boots. was. We will also explain in detail how to save a lot of money such as rent. His landlord recently raised the rent of his apartment by $ 200, so he moved from two bedrooms to one.

“Everyone is adjusting,” he said. He believes the Fed’s rate hike will curb inflation, but in the process “I think it will be financially distressing.”

Born in Portland, Oregon, 68-year-old Robert Liberty wants to save on food and travel.

“I got an avocado at the store, and when I saw the price I shook my hand like it was about to burn — it was $ 5.50 per avocado,” said her husband’s part-time job. Liberty, a lawyer and consultant, said it works full-time. He doesn’t know how much, but he thinks inflation will ease. For now, he said, avocado is “one of the things we can do without us.”

Fontaine Wayman, a 43-year-old songwriter from Charleston, South Carolina, is heading into the middle of inflation expectations. Her Weiman delivers to Instacart and has a household income of about $ 80,000 with her husband. Her Starbucks has always been her personal pleasure, but she’s cutting it out.

“Venti iced coffee with a little cold foam on top alone costs $ 6.11. It’s like $ 180 a month,” Weyman said.

She still believes inflation will decline over time, but she and her husband are thinking about ways to increase their household income in case it doesn’t.

“We know he’s likely to get a 5 to 10 percent salary increase anyway in March, but I asked him to demand a 15 percent,” she said. ..

That pattern—not only reducing and expecting the best, but also planning a future with higher potential inflation—is the pattern accepted by Susan Sea, who is monitoring costs as Costco rises. She lives in Armonk, NY with her husband and two teenagers and has reduced her purchase of frozen chili sea bass fillets due to soaring prices. This is sad news for her family.

“That fish is really delicious,” she said.

Rising costs for goods and services as a whole also urged She, who works for a US Treasury branch, to demand higher wages this year. She knew the 2.2 percent increase she would get because the typical cost of living adjustments weren’t keeping up with inflation. She was shy after all with a 5 percent salary increase.

“I think I’ll ask again,” she said of this year’s salary negotiations, assuming inflation continues.

Bacon buyer Burnett may be the clearest reason why expectations for faster inflation can cause problems if the Fed begins to take root in earnest. For him, the breadth of price volatility today makes it hard to believe that inflation will soon subside.

Retired Burnett is thinking of adapting his life accordingly. He co-owns a Florida condo with his sister, and unit maintenance costs are rising. He rents condos to tenants for only part of the year, but he could give them a full increase.

He likes tenants and doesn’t want to raise rent enough to push up rent, but if he notices that a neighbor’s landlord is pushing up prices, he can see himself and his sister billing more. It’s done.

“I want to make sure I’m really maximizing my income,” he said, taking inflation into account. And he thinks inflation is unlikely to decline soon, as he thinks others will do the same. “Once people get the idea that they can raise the price and they only pay for it, you are in a race. “

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One Comment

  1. Greetings! Very helpful advice in this particular post! It is the little changes that make the most significant changes. Thanks for sharing!

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