WASHINGTON, Nov 23 (Reuters): US consumers' inflation expectations rose for a second straight month in November despite growing signs that price increases are in fact slowing, according to a survey released Wednesday that may create some worry for Federal Reserve policymakers.
American households see inflation accelerating to 4.5 per cent over the next year, up from 4.2 per cent in October and from 3.2 per cent in September, the University of Michigan's twice-monthly survey of consumer sentiment showed. That is the highest rate since April.
Over a five-year horizon, consumers now see inflation running at 3.2 per cent on average, up from 3.0 per cent in October and 2.8 per cent in September. That is the highest since a matching reading of 3.2 per cent in 2011. Households' long-term inflation outlook has not been higher than that since 2008 when it reached 3.4 per cent as the financial crisis was beginning to unfold.
"These expectations have risen in spite of the fact that consumers have taken note of the continued slowdown in inflation," survey Director Joanne Hsu said in a statement. "Consumers appear worried that the softening of inflation could reverse in the months and years ahead."
US inflation has slowed notably since the summer of 2022 when the annual rate of price increases reached the highest since the early 1980s, prompting the Fed to respond with the most aggressive series of interest rate hikes since that era to try to bring inflation back to its targeted annual rate of 2 per cent.
As measured by the central bank's preferred gauge, price increases of late have been running at 3.4 per cent, down from 7.1 per cent in June 2022. But progress this year has been inconsistent, and Fed officials remain wary of the potential for a reversal.
The Fed's policy rate has remained unchanged at 5.25 per cent to 5.50 per cent since July, and investors are now convinced the tightening cycle is over. Minutes of the Fed's latest meeting earlier this month, released on Tuesday, showed officials agreed they would proceed "carefully" and only raise interest rates further if progress in controlling inflation faltered.
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