US inflation expectations rise to highest level since 2013

Recent polls have shown that Americans are gearing up for the highest inflation rate since 2013, according to the New York Fed. Rising prices could slow the pace of US economic recovery.

Worries about rising US inflation intensified in April as American consumer demand for housing outstripped supply, pushing prices higher.

As the country undergoes mass vaccinations and quarantine restrictions are lifted, consumer spending is on the rise.

According to reports from the New York Fed, polls showed that in April, Americans were willing to spend more on buying and renting real estate and training.

Average US inflation expectations for the next 12 months rose to 3.4% from 3.2% last month, the highest level since September 2013. Inflation expectations remain at 3.1% over the next three years, the highest level since July 2014.

These figures seem to be overstated, given the data for the past 12 months, as well as the fact that expectations rarely coincide with real figures.

The latest data on core inflation (excluding price changes for such volatile goods as food and energy) for March 2021 showed an increase in core consumer prices in the United States by 1.6%. The core inflation rate in March 2020 before the pandemic was 2.1%.

According to polls, Americans expect a record 5.5% house price inflation due to insufficient supply. Prices in education are also expected to rise, while expectations for gas and medical prices have dropped.

Such a situation could lead to the fact that at least part of these expectations will come true as a self-fulfilling prophecy, as Americans prepare to pay more and businesses tend to follow demand and may raise prices in such an environment.

The US is still far from full-time employment, as Labor Department reports showed last week, with many companies complaining of labor shortages. Amid increased unemployment benefits and direct government assistance to millions of Americans at $ 1,400, companies have to raise wages to attract employees, and this is reflected in the cost of goods and services, and, accordingly, in price increases.

The stock market has long been concerned about the risks of inflation, which could stunt the US economic recovery. Fed officials say that inflation may rise, but they admit that the target level of 2% will be exceeded, as they are convinced that such a situation will be temporary and controllable.

US Treasury Secretary Janet Yellen said that if inflation rises faster than expected, the central bank could raise interest rates, which would be an effective way to reduce inflation.

While Fed Chairman Jerome Powell and the Biden administration point to a strong recovery and persuade inflation to be controlled, Republicans and more skeptical Democrats and market pundits see the problem. They fear that pandemic stimuli and strong economic growth will drive inflation to dangerous levels and even risk causing the kind of disruptive price increases that were last seen in the 1980s.

While government incentives are working and consumer spending is on the rise, the main challenges for the US economy in 2021 remain a weak labor market and rising inflation.

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