Consumers Are Way Off Base About Inflation

I was over at the Conference Board site checking out consumer sentiment, and I was unsurprised to find that it’s pretty dismal: down from 98 in June to 92 in July. There’s not much to say about this aside from “what else would you expect?”

But then I browsed through the whole news release and came across something I hadn’t seen before: expectations of future inflation rates. What caught my eye is that in July the average expectation in the Conference Board’s survey for inflation one year from now is 6.1 percent. Yowza! We haven’t had inflation that high for 30 years, and over the past twelve months it’s been running at about 2 percent. Here’s a comparison of survey expections with expectations based on bond prices put together by the Cleveland Fed:

As I said, I’ve never seen this before so I’m not sure what to make of it. But what it says is that no matter how long inflation has been low, ordinary consumers insist on believing that it will go up to 4-5 percent any day now. And if something bad happens, it will go up to 6 percent.

I’m trying to think of what effect this has. What are the upsides and downsides of consumers thinking that inflation is far higher than it really is? They’ll probably feel cheated by a 3 percent raise or a 2 percent return on their savings. On the other hand, they might increase their spending if they think their money is losing value and there’s nothing they can do about it.

What else? I’m a little fuzzy this morning, but there must be more profound consequences of this disconnect.

THE TRUTH...

is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

payment methods

THE TRUTH...

is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate