Consumers in the US see inflation rise in the short term at twice the wage increases

US consumers’ short-term inflation expectations rose in November and future earnings growth expectations fell, suggesting they expect price hikes to outpace wages at an even faster pace in the near term, according to a poll released Monday by the New York Federal Reserve.

Prices for food and other goods are rising at the fastest rate since 1982, data released by the Labor Department last week showed. This higher inflation is cementing expectations that the Fed will raise interest rates next year.

Price increases are also eroding wage gains, with the survey suggesting that consumers expect the situation to worsen in the short term. While short-term inflation expectations rose, earnings expectations for the next year decreased in November.

Consumers said they expect inflation to reach a median of 6% in one year, down from a 5.6% outlook in October. Expectations for earnings growth in the coming year fell to 2.8% in November from 3% in the previous month.

That would leave inflation growing 3.2 percentage points faster than earnings in one year, the widest gap since the survey was launched in 2013.

However, the median expectations of what inflation could be in three years fell to 4% from 4.2%, the first drop since June and only the second drop since October 2020. And the uncertainty about what inflation could look like Future also rose to new highs for the survey.

Expectations for future growth in house prices eased slightly, but consumers still expect stronger growth than before the coronavirus pandemic. Consumers said they expect home prices to rise a median of 5% in one year, down from 5.7% in October but well above the 3.1% expected in February 2020.

The monthly consumer expectations survey is based on a rotating panel of approximately 1,300 households.