The Wall Street Journal reports, "a survey released by the Federal Reserve Bank of New York Monday found that in January, American households were continuing to expect inflation to increase from current levels, amid some rising signs of optimism about the job market".
In the poll of consumer expectations, the New York Fed found that respondents said they expected to see inflation readings at 3% one year ahead, a slight slowdown from the 3.14% reported in December.
The finding is notable because it shows the public continues to expect inflation to rise from current levels. The economy has been weathering an extended period of weak price gains economists and policymakers alike have struggled to explain. In December, the Fed’s preferred price gauge, the personal consumption expenditures price index, was up by 1.1% compared to the same month a year ago.
Fed officials want inflation at 2%, and a good deal of their current aggressive policy action is aimed at goosing up inflation to the desired level. Some central bankers fear that persistently weak inflation readings point to underlying weakness in the job market, as workers are unable to demand higher wages.
Fed officials, like most economists, expect inflation to rise over time. A major factor buttressing that forecast is the relative stability of inflation expectations. The New York Fed report suggests that consumers do in fact view the current nadir in inflation readings to be temporary.
The New York Fed said that consumers in their survey are expecting to be paid more over the coming year, and reckon if they lost their job, it’s getting easier to find a new one. The earnings growth expectation in January was 2.4%, from 1.8% the month before. The probability of finding a new job over the next three months if one were to lose one’s today increased to 49%, from 46% in December.
On the home price front, the survey found that households expect to see a 4.54% increase in home prices, a reading consistent with what’s been seen over recent months.
