New Measure of Inflation Expectations Jumps to Record High as Americans Brace for Even Higher Prices

New Measure of Inflation Expectations Jumps to Record High as Americans Brace for Even Higher Prices
A woman shops for groceries at a supermarket in Monterey Park, Calif., on Oct. 19, 2022. Frederic J. Brown/AFP via Getty Images
Naveen Athrappully
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A weekly measure of inflation launched in February last year has surged to a record high, and is predicting a tougher inflationary environment for American consumers ahead.

The Indirect Consumer Inflation Expectations (ICIE) is a joint effort between economists from the Federal Reserve Bank of Cleveland and Morning Consult. It asks survey participants how their incomes will have to change to ensure that they are equally well off over the next 12 months, measuring their inflation expectations for the period. In an interview with The Washington Post, John Leer, chief economist at Morning Consult, said that ICIE hit its highest-ever level of 8.25 percent for the week ended Nov. 12.

This is up from 8.02 percent during the previous week, and is the second week in a row that the survey has registered “really record-high inflation expectations.” The latest data “bucks the trend” of the past two months where a lot of volatility led to instability, Leer stated.

“We’re clearly seeing a turning point with elevated inflation expectations … It’s hard to refute now—after having two consecutive weeks, 20,000 survey respondents per week—that 12-month inflation expectations are elevated.”

People now believe that they will have to make more money and that their wages will have to grow faster to keep up with the rising prices of goods and services, Leer said.

The 12-month Consumer Price Index (CPI), a measure of annual inflation, fell to 7.7 percent in October from 8.2 percent in September. An analysis by Morning Consult suggests that the core CPI inflation is likely to rise in November following the October decline.

“Previous large and unanticipated declines in inflation this year were immediately followed by a rebound the following month,” the research company said in a blog post on Nov. 15.

Fed Survey, Inflation Burden

A survey published by the Federal Reserve Bank of New York on Nov. 14 also showed that inflation expectations among Americans had risen for the short, medium, and longer terms.

While the median one-year ahead and three-year ahead inflation expectations rose by 0.5 and 0.2 percentage points, respectively, to 5.9 percent and 3.1 percent, in October, the median five-year ahead inflation expectation rose by 0.2 percentage points, to 2.4 percent.

Elevated inflation is severely burdening American households. A report by LendingClub last month showed that 63 percent of U.S. citizens were living paycheck to paycheck as of September 2022. Among these people, 66 percent reduced spending while 49 percent changed their shopping preferences.
Debt levels have spiked amid the inflationary environment. American household debt saw its biggest quarterly jump in 15 years in the third quarter, as many began to use credit cards and mortgage balances, the New York Fed said on Nov. 15.
Meanwhile, households can expect to pay more money for Thanksgiving dinner this year due to rising prices. A report by the American Farm Bureau Federation (AFBF) predicts the Thanksgiving dinner to be more costly by 20 percent.
Naveen Athrappully
Naveen Athrappully
Author
Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.
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