US Consumers Eye Higher Costs for Food and Rent Over the Near Term

United States consumers’ expectations for inflation over the next 12 months hit the highest level since we emerged from the pandemic.

The priciest hikes will make the key essentials of life, namely food and shelter, more expensive.

The latest Survey of Consumer Expectations released by the Federal Reserve Bank of New York Monday (April 14) indicated that the near-term inflation outlook is at its highest level since March 2023. Alongside sentiments on inflation, households are incrementally more negative on the state of their personal finances and job prospects.

Consumers think inflation will hit 3.6% one year from now, as measured in March. That’s higher than the 3.1% year-ahead expectations that were in place in February. The three-year horizon has a 3% expected inflation rate, unchanged from the previous reading. Five years out? Consumers surveyed by the Fed think that inflation will be 2.9%, down from 3% in February.

The data showed year-ahead expectations about their households’ financial situations “deteriorated in March,” the Fed said, “with the share of households expecting a worse financial situation one year from now rising to 30%, the highest level since October 2023.”

Consumers also may be steeling themselves for a rough job market. In the Monday report, the Fed estimated that unemployment expectations — or the mean probability that the U.S. unemployment rate will be higher one year from now — jumped by 4.6 percentage points to 44% in March, the highest reading since the depth of the pandemic in April 2020, where unemployment peaked at nearly 15%.

The mean perceived probability of losing one’s job in the next 12 months increased by 1.6 percentage points to 15.7%, the highest level in a year. The increase was largest for respondents with annual household incomes below $50,000.

The PYMNTS Intelligence report “Struggling Consumers Go to Short-Term Strategies to Manage Higher Expenses” found that coming into March, housing costs were on the rise, with price hikes hitting 49% of renters.

Meanwhile, the PYMNTS Intelligence report “Average Credit Debt Hits More Than $7,000 for Financially Struggling Cardholders” revealed that in low-income households, credit card debt averaged around $4,100, many of those consumers were already maxing out their credit cards, at about 20.8%. Given the fact that among all cardholders regardless of income levels, 47% were using installment plans linked to pay for groceries, there’s some indication that consumers are taking advantage of the ability to pay over time to conserve cash flow.

The Fed data detailed that although consumers expect overall inflation to be north of 3% in the year ahead, they estimate that food inflation will hit 5.2% and rent increases will stand at about 7.2% in the same timeframe. That’s a surge from the respective 4% and 5.5% gains that were anticipated at the end of last year.

Spending is not anticipated to keep pace with inflation, as the Fed’s survey indicated that households’ median expected earnings growth will be 2.8% through the next year. The gap between inflation and wages comes out to be around 0.8% — and that money has to come from somewhere, either through increased use of traditional credit or through buy now, pay later options or savings.

Last week, in a separate report, the University of Michigan’s survey on consumer sentiment indicated that inflation expectations also surged. Short-term inflation expectations for the year ahead jumped from 5% in March to 6.7% in April, the highest level since 1981.

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