Consumer Inflation Expectations Hit Eight-Year High in Fed Study

U.S. consumers’ expectations for inflation over the medium term rose to an eight-year high in July, according to a Federal Reserve Bank of New York survey.

The median survey respondent anticipated an inflation rate of 3.7% in three years’ time, the highest since August 2013 and up from 3.6% in June, the New York Fed said Monday. Expectations for inflation over the next year rose to a record 4.8%.

Fed officials follow measures of inflation expectations closely because they believe them to be key determinants of actual inflation. The New York Fed survey results are somewhat at odds with indicators of inflation compensation in financial markets, like the 10-year break-even inflation rate derived from inflation-protected Treasury bonds, which has moderated since reaching an eight-year high in May.

Consumers polled by the New York Fed said they expected rents to increase 9.8% in the coming year, the highest reading since the survey began in 2013. Expected changes in medical care costs over the next 12 months ticked up to 9.5%, while the expected change in gas prices moderated to 8.1%.

Older Americans and those with incomes below $50,000 reported the sharpest anticipated rise in prices over the medium term, the survey results showed.

Forecasters polled by Bloomberg expect the Labor Department’s monthly report on consumer prices, to be published Wednesday, will show that the annual inflation rate moderated slightly in July after rising to a 13-year high of 5.4% in June.