Inflation expectations hit record levels in May, New York Fed says

Consumer expectations for inflation and spending in the year ahead both hit record levels in May, the same month prices rose at their fastest pace since late 1981, the New York Federal Reserve reported Monday.

The outlook for price gains in the coming year increased to 6.6% for the month, up 0.3 percentage points from April and tied with March for the highest rate on record for a survey that goes back to June 2013. That came even though three-year inflation expectations remained essentially unchanged at 3.9%.

At the same time, median household expectations for spending increases over the next 12 months soared to 9%, up a full percentage point from the previous month. That’s up sharply from the 5.5% rate to start the year and nearly double the 5% expectation from a year ago.

Both increases came the same month that the consumer price index rose 1% from April and 8.6% from May 2021, the biggest gain since December 1981. Major increases in food, energy and shelter costs drove the gain and put added pressure on the Fed to raise interest rates.

Sentiment also dimmed about the stock market, which has been getting thrashed amid worries about rising inflation and a potential recession on the horizon.

Just 36.2% of respondents expect the market to be higher a year from now, a dip from the 37.9% reading in April and also a new series low.

In addition to the rising prices, consumers said it was harder to get credit.

The level of consumers saying it was more difficult to obtain financing jumped to 11.4%, up from about 9% the previous month, to the highest level since October 2020.

Job insecurity also grew, despite an increase of 390,000 in nonfarm payrolls for the month and about a 2 to 1 ratio of employment openings to available workers.

Those saying they feared losing their job rose to 11.1%, still well below the long-term average but the highest level since January. Expectations for the unemployment rate to be higher in a year increased to 38.6%, the highest level since February 2021.