After Inflation Soars by 39-Year Record Rate, American's 'Expectations' for More Surges to New High


"This is about well-anchored inflation expectations," says the Federal Reserve's Vice Chair

WASHINGTON, D.C. (Texas Insider Report) — With consumer prices and annual inflation rates reaching a near 40-year high of 6.8% in November, America's consumers are bracing for the highest level of inflation in nearly a decade next year as nationwide sentiments over inflation fears accelerated to a new record high in November. And, the Labor Department also recently said that the recent price increases for food and energy were the fastest 12-month gains in over 13 years.

And after 13 consecutive months of increases, November's "Survey of Consumer Expectations" puts additional pressure on the Federal Reserve to hike interest rates throughtout the first half of 2022.
 
"Median inflation uncertainty – or the uncertainty expressed regarding future inflation outcomes increased at both the short- and medium-term horizons, with both reaching new series highs," the survey said.

That's what the key Federal Reserve Bank of New York's Survey – released early last week – indicated for the American consumer's expectaions of inflation in 2022. The results are based upon a rotating panel of 1,300 households being polled, which was published on December 13th.

The survey plays a critical role in determining how Federal Reserve policymakers respond to the trends or spikes in inflation, because actual inflation depends – at least in part – upon what consumers think it will be.
 
It's a sort of self-fulfilling prophecy – if everyone expects prices to rise by 7% in the year, that signals to businesses that they can increase prices by at least 7%. And workers, in turn, will demand 7% pay raises to offset the rising costs.
 
"This is about well-anchored inflation expectations," said Fed Vice Chairman Richard Clarida during a question-and-answer session at the Cleveland Fed two weeks ago.

"Getting actual inflation down close to 2% is going to be an important part of keeping those expectations anchored."

Federal Reserve Bank Chairman Jerome Powell has already signaled that the U.S.'s Central Bank may speed up its withdrawal of pandemic support for the economy – in an attempt to combat inflation that's been higher and longer-lasting under President Joe Biden's than policymakers initially expected.

Such moves by the Federal Reserve could lead to a faster-than-expected interest rate hikes.
 
"At this point... inflationary pressures are high," said Powell two weeks ago while testifying on Capitol Hill.

"It is therefore appropriate, in my view, to consider wrapping up the taper of our asset purchases – which we actually announced at our November meeting – perhaps a few months sooner."

As gas prices and "Supply Chain" concerns became a predominant issue for consumers shopping prior to the Christmas Holidays, last week's report by the Labor Department showed that the price of U.S. Consumer Goods rose by 6.8% over November of 2020 – marking the fastest pace of price increases seen since June 1982,

Price increases were widespread:
 
  • Energy Prices jumped 3.5% in November,
    • and are up 33.3% year over year.
  • Gasoline Prices are a stunning 58.1% higher than just a year ago.
  • Food prices have also climbed 6.1% higher over the year, while
  • Used Car & Truck Prices – a major component of the inflation increase – are up 31%.
The median expectation of American consumers about inflation increases on year from now are also at their highest levels since that measurement was launched in June 2013, according to the New York Federal Reserve's Survey of Consumer Expectations. 
  That 6.8% figure all but solidifyied the Fed's plans to accelerate its reation timeline.

As Americans fear the price of goods and services like Food, Health Care and College Tuition will continue to rise over the next year, they also expect the price of gasoline and medical care to get cheaper. They expect that prices for rent will remain unchanged.
 
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