Consumers Expect Red-Hot Inflation to Crush Their Earnings: Fed’s Survey

by Wolf Richter
Wolf Street

And the folks who experienced the high inflation of the 1970s and early 1980s as adults expect inflation to hit 5.7% in one year.

When the Fed discusses inflation, and the extent to which it would be allowed to exist, it always mentions “inflation expectations” and that they are and should be “well anchored” because persistent consumer price inflation is in part a psychological phenomenon, where consumers are willing to pay higher prices because they expect higher prices. Companies are getting away with charging higher prices, and because they expect to charge higher prices, they’re raising their wages, but not as much as they raise prices. These inflation expectations contribute to a cascade of higher prices leading to higher prices. And consumers’ inflation expectations are now blowing out.

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