Most Americans Expect Inflation to Continue

Most Americans Expect Inflation To Continue

Prices have eased at the pump, and Democrats in the U.S. Senate have passed the Inflation Reduction Act, a piece of legislation that purportedly aims to moderate the high prices harming consumers’ pocketbooks.

But average Americans are still pessimistic about their economic situation. That’s because while inflation has slowed slightly, thanks, in part to the Federal Reserve’s interest rate hikes, prices for everyday items are still surging.

While the latest Forbes Advisor-Ipsos Consumer Confidence Biweekly Tracker finds that consumer confidence increased slightly from two weeks ago, it remains below pre-pandemic levels and the survey’s historical average.

The survey, conducted by Ipsos, measures consumer sentiment over time.

Consumer Sentiment Remains Dour

Although the nation’s economy contracted for two consecutive quarters, employers robustly added workers to their payrolls.

The most recent consumer price index (CPI) report released by the Bureau of Labor Statistics (BLS) gained 8.5% year over year in July. While that’s better than June’s report by 60 basis points (bps), it’s still sky-high.

Independent experts from the University of Pennsylvania’s Wharton School find the Inflation Reduction Act will probably have little impact on actual inflation, as it’s more focused on allocating around $433 billion to climate change, health care and tax enforcement.

This could be why Americans, for their part, seem unmoved.

“Although the Bureau of Labor Statistics reported better than expected job figures on Friday and the Senate passed the Inflation Reduction Act on Sunday, 63% of Americans anticipate inflation to continue to rise over the next year,” James Diamond of Ipsos states.

After dealing with higher-than-expected prices for more than a year and a topsy-turvy pandemic economy for twice as long, consumers are waiting for good news to arrive before changing their sullen disposition.

Inflation, Inflation, Inflation

Inflation is still the elephant in the room.

According to this week’s survey, the number of Americans who believe the inflation rate will go up remains unchanged from four weeks ago at 63%. On the other hand, 28% say it will stay about the same, and 10% believe it will go down.

Adding to inflationary fears, 60% of Americans believe mortgage interest rates will go up, 33% that they’ll stay the same, and 7% that they’ll go down.

Regarding monthly bills and other regular expenses, roughly three in five Americans believe the amount they pay on those items will go up and that taxes will increase.

July’s CPI report stated that the overall consumer price index remains relatively unchanged at 8.5%. At the same time items, gasoline and energy both fell. Gasoline fell 7.7%. At the same time, energy fell 4.6% for the month.

Other items, however, remained high. Food rose 1.1%, and shelter rose 0.5%.

Not to mention, this is all coming as the Federal Open Market Committee (FOMC) is still expected to raise rates and shrink its balance sheets, which increases the cost of borrowing.

The Fed will likely continue its tightening policy until inflation moderates closer to its 2% target. July’s CPI numbers were an improvement, but there is still far more room to go.

Market observers, though, hoped that July’s inflation report demonstrated that inflation has peaked, giving hope that the Fed is closer to the end of its rate–hiking regime than the beginning.

“U.S. inflation came in lower than expected, boosting markets that have recently been shaken by the hawkishness of the U.S. Federal Reserve,” says Oliver Blackbourn, multiasset portfolio manager at Janus Henderson Investors. “Inflation has been expected to peak over the summer for some time, so it was reassuring for markets that there are clear signs that this looks to be happening.”

Longer term, though, the Biden administration hopes its Inflation Reduction Act will help reduce inflation overall. Still, analysis from the Wharton School, and survey data from YouGov, show that academics and typical Americans aren’t buying it.

The Broader Economy

The rosiest aspect of the most recent survey continues to be people’s expectations for their jobs.

At 64.8, the Jobs Index is up by 0.9 from two weeks ago. This is also above both the pandemic average and the historical average, by 4.8 points and 5.4 points, respectively. In fact, it’s only 4.9 points below its pre-pandemic level from early March 2020.

This is after employers added almost 530,000 workers in July. At the same time, the unemployment rate dropped to 3.5%.

“Combing through the report, it’s nearly impossible to find any sign of weakness in labor conditions with manufacturing payrolls up, net revisions up, and the unemployment rate falling to 3.5%,” says Charlie Ripley, senior investment strategist at Allianz Investment Management.

Of course, this employment strength is also why the Fed feels it can raise rates so high.

That means there are still other issues to watch as well, including the fact that inflation-adjusted wages are down 3%, and the labor force participation rate is below pre-pandemic levels.

The biggest riser in the survey was the Expectations Index, which gained 2.6 points to 58.  Should the positive trends continue to develop, Americans could be more optimistic about their lot in future surveys.

More from Forbes Advisor