Year-Ahead Inflation Expectations Reach Highest Reading Since May

Consumers expect to see higher inflation in the year ahead and in the long run, according to preliminary results for the University of Michigan’s January Surveys of Consumers.

Year-ahead inflation expectations “soared” from 2.8% in December to 3.3% in January, reaching its highest reading since May, the survey found. The reading was also higher than the range of 2.3% to 3% seen in the two years before the pandemic.

Long-run inflation expectations rose from 3% in December to 3.3% in January, according to the survey. The size of this one-month change was one of the three largest seen over the past four years.

“For both the short and long run, inflation expectations rose across multiple demographic groups, with particularly strong increases among lower-income consumers and Independents,” Surveys of Consumers Director Joanne Hsu said in the report.

Years of inflationary pressure led consumers to adopt cost containment measures when shopping for groceries, Matt Garfield, managing director for retail and consumer products at FTI Consulting, told PYMNTS in an interview posted Tuesday (Jan. 7).

“Consumers, feeling the effects of sustained inflation, are adopting cost-containment measures such as trading down to private labels, shopping at discount or wholesale retailers, and focusing on pantry essentials,” Garfield said. “This shift has led to decreased basket sizes and more focused shopping trips.”

Inflation has also pushed consumers to seek everyday value from credit card rewards, according to the PYMNTS Intelligence and i2c collaboration, “The Credit Economy: The Role of Reward Programs in Consumer Credit Usage.”

The report found that 77% of consumers who do not live paycheck to paycheck chose their credit cards because of the benefits of rewards programs.

In other findings from the Surveys of Consumers released Friday, consumer sentiment was “essentially unchanged” in January — inching down less than index point from December — as there was a 5% improvement in consumers’ assessments of personal finances balanced by a 7% decline in short-term economic outlook and a 5% decline in the long run, per the report.

“January’s divergence in views of the present and the future reflects easing concerns over the current cost of living this month, but surging worries over the future path of inflation,” Hsu said in the report.

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