If you’re bracing for a year of higher inflation and a worse job market, you’re not alone.
The outlook for inflation in the next year ticked up to its highest rate on record, according to the Survey of Consumer Expectations released Monday by the Federal Reserve Bank of New York. Expectations increased to 6.8% in June from 6.6% in May, the highest since 2013, when the survey began.
Expectations for losing a job in the next year worsened, too, ticking up to 11.9% from 11.1%, (though still below pre-pandemic levels) along with the probability of finding a new one in the event of a layoff, which dipped to 56.8% in June from 58.2% in May. The survey wasn’t all doom and gloom though: three-year inflation expectations fell to 3.6% from 3.9%, the lowest since January.
Our attitudes are surely being impacted by the worst inflation in more than 40 years and swirling fears of an impending recession. Consumers’ expectations for inflation are important because they can be something of a self-fulfilling prophecy: the theory is that if you expect inflation to stay bad, especially in the long term, you will negotiate higher wages and companies will set higher prices accordingly, both of which could exacerbate the problem. The New York Fed’s survey of a rotating panel of 1,300 heads-of-household is intended to give policymakers an idea of whether this dangerous pattern is taking hold.
The survey also showed that people see vulnerability in the labor market, where jobs are currently plentiful. Although hiring is still going strong, that trend is threatened by the Federal Reserve’s ongoing campaign of interest rate hikes, which is intended to cool inflation by slowing down the economy.
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