Reflecting the 41-year inflation high, American consumers’ expectations about the economy and personal finance turned bleak in March. Expectations about short-term inflation, home price growth and spending growth all increased, according to the Federal Reserve Bank of New York March 2022 Survey of Consumer Expectations, released April 11.

                By                    Yaёl Bizouati-Kennedy

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The New York Fed’s survey also notes that labor market and income growth expectations receded somewhat, and respondents turned less optimistic about their year-ahead household’s financial situation. The pessimism isn’t without cause as the median expected growth in household income fell by 0.2 percentage point in March to 3% to its lowest level since August 2021. 

This coincides with the Labor Department’s March Consumer Price Index which saw the 12-month increase in inflation, which has been steadily rising, at the largest since the period ending December 1981. Indexes for gasoline, shelter and food were the largest contributors to the seasonally adjusted all items increase. Over the last 12 months, the all-items index increased 8.5% before seasonal adjustment.

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Based on reports of ongoing increased inflation, consumers feel that their household spending will continue to rise, as median year-ahead household spending growth expectations jumped by 1.3 percentage points to 7.7% — a new series high. The increase, the largest month-to-month in the series, was broad-based but was also the largest for respondents with a college degree and with annual household incomes above $100,000.

The views were also bleak regarding access to credit compared to a year ago, with more respondents expecting that it will be harder to obtain credit in the year ahead.

Perceptions about households’ current financial situations compared to a year ago also deteriorated in March, with more respondents reporting being financially worse off than they were a year ago. U.S. consumers were also more pessimistic about their household’s financial situation in the year ahead, with fewer respondents expecting their financial situation to improve a year from now.

“Consumers are still focused on locking in near-term pricing given the fear that costs will continue to rise to levels that may put such purchases out of reach as evidenced by the spike in spending,” he said. “This behavior correlates well with the pessimism that is also building around household financial situations in the coming year.  While this could be viewed as an overall negative sign for financial markets, pessimism and low consumer confidence actually correlate historically to bottoms rather than peaks.”

There seems to be one glimmer of hope. U.S. consumers seem to be optimistic about the future, however, while the median one-year-ahead expectations for inflation increased to a new series high of 6.6%, the three-year outlook decreased slightly to 3.7% from 3.8%.

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“While it’s not quite clear whether inflation will subside, we are beginning to experience price de-acceleration across some sectors, primarily used cars and apparel, which may be the first signs of a lull in the inflation rate,” Mawji said.

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