US consumers’ long-term inflation expectations surged to a 12-year high over mounting concerns about borrowing costs and uncertainty about the economy’s future, according to fresh data from the University of Michigan.
Consumers expect prices to climb at an annual rate of 3.2% over the next five to 10 years — up from 3% the month prior, according to the university’s preliminary November findings that were obtained by The Post.
Surveyed Americans see costs rising 4.4% during the coming 12 months, up from an expectation of 4.2% a month earlier, according to the report released Friday.
“The combination of expectations for persistently high prices, high borrowing costs, and labor market weakness does not bode well for the prospect of continued strength in consumer spending and economic growth,” Joanne Hsu, director of the survey, told Bloomberg on Friday.
On Thursday, Fed Chair Jerome Powell reiterated the central bank is willing to hike interest rates further if necessary to tamp down inflation — surprisingly hawkish comments that sent the S&P 500 tumbling by 0.8% after eight straight days of gains.
“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” Powell said.
Separately on Friday, debt-rating agency Moody’s cut its outlook on the US government to “negative” from “stable” citing large fiscal deficits, political polarization and a decline in debt affordability.
The move by Moody’s – the last major US credit rating agency to keep a top rating for the US government – follows a rating downgrade by Fitch earlier this year after months of squabbling in Washington over the US debt ceiling.
Friday’s rise in consumer inflation fears was attributed to expectations that gasoline prices will increase over the short and long term, despite the fact that prices increases at the pump have been slowing in recent months.
The gasoline index was blamed for the majority of the 3.7% year-over-year rise in September’s Consumer Price Index.
Last month’s CPI — the most widely used measure of inflation that tracks the overall change in goods and services — showed that the gasoline index ticked 2.1% higher, though it was a stark slowdown from August’s 10.6% increase, when AAA figures showed that the average price for a gallon of gas was $3.85.
As of Thursday, a gallon of gas in the US averages $3.39, according to AAA.
October’s CPI figures will be released on Tuesday.
Meanwhile, one in five consumers the University of Michigan surveyed said unemployment rates will keep inflation stubbornly high over the next year.
October’s jobs report showed that the US economy’s unemployment rate sat at 3.9%, which continues to outperform expectations given the rapid increase in interest rates, which currently sit at a range not seen since 2001 — between 5.25% and 5.5%.
October’s higher unemployment figure — which is slightly above the 3.8% rate that held steady in August and September, which had ticked higher from 3.5% in July — signals a greater likelihood of a recession by year-end, based on historical data, per Bloomberg economists.
Central bankers have also repeatedly warned that continued economic growth coupled with robust consumer spending will leave them no choice but to raise interest rates again.
Thus, when last month’s core personal consumption expenditures price index (PCE) increased by 0.3% in September, it signaled that US consumers could be in for another rate hike following the Fed’s next policy meeting in mid-December.
And while core prices kept climbing — a key marker used by the Fed to gauge the rate of inflation that excludes volatile food and energy costs — so did inflation-adjusted consumer spending, which rose 0.4% in September, according to federal data.
However, Fed officials have taken the possibility that the US economy slips into a recession off the table, citing its aggressive tightening regime, which could send interest rates soaring another 25 basis points before year’s end in an effort to stem inflation down to central bankers’ 2% goal.
During his remarks at the International Monetary Fund’s policy panel in Washington, DC, Powell made it clear that the central bank’s historic spree of interest-rate increases isn’t necessarily over.
“We will keep at it until the job is done,” Powell added of the Fed’s 2% inflation goal, which the US economy hasn’t seen since 2012.
Since last year, the Fed has hiked interest rates 11 times – the fastest pace of tightening since the early 1980s.