U.S. Five-Year Inflation Expectations Rise to 3.5% in October

Key Facts

U.S. consumers’ inflation expectations over the next five years rose to 3.5% in October, from 3.4% in September, according to the final reading of the University of Michigan survey published on 23 October. The figure measures how much participants expect prices to rise in the future; it is not the actual inflation rate. Inflation expectations for the coming year also rose to 4.7% from 4.6% in September. The results show household expectations remain under pressure, while the confidence index stays near its recorded lows.

The final consumer confidence index stood at 48.0 in October, compared with 48.1 in September, its second-lowest reading after 44.8 in May. Joanne Hsu, director of the Surveys of Consumers, said, "Purchasing power is dominating consumers’ views of the economy." She added that confidence was 10% below its level a year earlier and 15% below its level in February, before the conflict with Iran.

Inflation expectations for the next twelve months also rose to 4.7% in October, after reaching 4.6% in September, according to the survey. Those expectations stood at 3.4% in February, before the start of the U.S.-Israeli war on Iran. The trajectory reflects households’ higher estimates for prices in the coming months, alongside rising expectations over the five-year horizon. In separate data, the U.S. consumer price index recorded an annual increase of 3.7% in September, versus 3.4% in August. On a monthly basis, prices rose 0.6% between August and September, the largest increase in five months.

Gasoline prices rose 9.1% month over month between August and September, while airfares were up 22% year over year in September, according to consumer price data cited by the Associated Press. Airfares rose 1.2% during the same month. These moves place energy and transportation prices among the pressures facing consumers, while Hsu said purchasing power is at the forefront of their views of the economy. The agency reported that households are growing more concerned about inflation’s impact on their budgets and ability to plan for the future. October’s update is the University of Michigan survey’s last before the midterm elections.

Attention is turning to the Federal Reserve meeting scheduled for 27 and 28 October, with most Wall Street investors expecting interest rates to remain unchanged at the meeting, according to the Associated Press. The agency noted the possibility of another increase in December in investors’ expectations. The meeting follows an annual inflation reading of 3.7% in September and a rise in consumers’ inflation expectations for the coming year and five years. The survey data also highlight a divergence between an improvement in the expectations index and a decline in the current conditions index. October’s final reading remains the survey’s last update before the election.