Americans expect more inflaton this year and remain uneasy about the direction of the economy, the University of Michigan’s survey of consumers showed Friday.
Expected inflation over the next year rose to 4.7 percent from 4.2 percent in June. That’s the highest level in over a decade.
At least for now, however, Americans still believe that inflation will remain tame over the long term. Expected inflation over the next five years is just 2.8 percent, down from 3 percent in May.
“While most consumers still expect inflation to be transitory, there is growing evidence that an inflation storm is likely to develop on the not too distant horizon. The improved finances of consumers have greatly reduced consumers’ resistance to price increases,” said Richard Curtin, the chief economist of the survey.
Curtin explained the possible dynamic for inflation lasting longer than thought:
Consumers and firms currently justify their actions as temporary adjustments due to the pandemic. However justified, such changes act to generate an upward spiral in prices and wages. Moreover, the fiscal and monetary policies already in place, and the likely increases and continued accommodation now contemplated, will only increase the willingness of consumers and firms to act in ways that accelerate the upward spiral in prices and wages.
