After more than a year of rapid price increases, economic policymakers are sharply focused on inflation expectations. Consumers tell us what they think about rising costs.
Inflation started in the bacon path for Dan Burnett, a 58-year-old former medical center administrator living in Margaretville, NY
Last summer, he began to notice that the breakfast staple rose sharply in price, from $8 a pack at his local grocer to $10. Before long, a wide variety of food items were more expensive—so much so that he began driving 45 miles to shopping at Aldi and Walmart, hoping to land better deals. This summer, inflation appears to be rising across the board, pushing up prices for brake repair, hotel rooms and McDonald’s fries.
“My biggest fear is that they can’t get it under control and it just keeps going,” said Mr. Burnett. He thinks about how he might reshape his financial future in a world where prices — which had long risen by 2 percent or less per year — are now rising significantly more.
People like Mr. Burnett, who is beginning to believe America’s price slump could last a long time, are the Federal Reserve’s biggest fear. If consumers and businesses expect rapid inflation to be a permanent feature of the U.S. economy, they may begin to change their behavior in a way that will keep prices rising. Consumers may begin to accept price increases without shopping, workers may demand higher wages to cover rising costs, and companies may raise prices both to cover higher labor costs and because they believe customers will tolerate the higher price tags.
Economists often blame that kind of spiraling inflationary mindset for fueling rapid price increases in the 1970s and 1980s, a painful period when inflation proved difficult to tame. That’s why the Fed, which is responsible for keeping inflation in check, has focused on a series of inflation expectations, hoping that a psychology of high prices won’t take hold.
Most signs indicate that people still believe that inflation will decrease over time. But interpreting inflation expectations is more art than science: economists disagree about which metrics matter, how to measure them, and what can change them. And after more than a year of rapid price increases, central bank officials are increasingly concerned that it is foolish to take the stability of price expectations for granted. Officials have quickly raised interest rates to try to cool the economy and send a signal to the public that they are serious about lower price hikes.
“There’s a clock running here, where we’ve had inflation for over a year now,” Fed chairman Jerome H. Powell said recently. “It would be poor risk management to simply assume that those longer-term inflation expectations would remain anchored indefinitely in the face of continued high inflation. So we don’t do that.”
Central bankers are closely monitoring measures, including the longer-term inflation outlook from the University of Michigan, as they try to assess whether expectations are underperforming. They have risen since 2020, but have not risen as sharply as actual inflation. Still, those trackers only show where the expectations are today. They say little about when they might change or what might change them.
To get a more detailed, qualitative picture of how consumers feel about inflation, The New York Times asked readers what costs stood out to them, how much inflation they expected, and how they formed that opinion. The takeaway: While many people still expect inflation to decline over time, that assumption is a fragile one, given that many Americans experience the fastest inflation of their adult lives for a wide variety of goods and services.
Grocery and gas prices weigh heavily on many people’s minds, in line with research on how consumers shape price expectations. But the specific products that raise eyebrows vary widely and go beyond just food and gas.
Guitars, rent and pedicure are getting more expensive in California. Artisanal crafts are forcing higher prices in New Mexico.
People deal with climbing costs in different ways. Many said they were cutting consumption, which could help reduce inflation by lowering demand and giving supply a chance to catch up. A few continued to buy, hoping that costs would decrease over time. But others were asking for more wages or trying to find other ways to cover their climbing costs, while resigning themselves to rising prices.
For Siamac Moghaddam, a 37-year-old who is in the Navy and lives in San Diego, dealing with inflation was less about cutting down on the little things — like the pedicures he likes to get since he’s in boots all the time — and more about saving on major expenses, such as rent. His landlord recently increased the rent on his apartment by $200, so he moved from his two-bedroom to a one-bedroom.
“Everyone adapts,” he said. He thinks the Fed’s rate hikes will bring inflation under control, although “I think we will suffer economically.”
Robert Liberty, 68 and from Portland, Oregon, is trying to save on food and travel.
“I picked up an avocado at the store and I pulled my hand back like it was about to be burned when I saw the price — it was $5.50 per avocado,” says Mr. Liberty, a part-time attorney and counselor whose husband works full-time. He thinks inflation will moderate, though he’s not sure how much. For now, an avocado, he said, is “one thing we can do without.”
Fontaine Weyman, a 43-year-old songwriter from Charleston, SC, is more in the middle of inflation expectations. Mrs. Weyman delivers for Instacart and has a family income of approximately $80,000 with her husband. Starbucks has always been her personal indulgence, but she’s calling it quits.
“It’s $6.11 for just a Venti iced coffee with a little cold foam on top — that’s about $180 a month,” Ms. Weyman said.
While she still believes that inflation will decrease over time, she and her husband are thinking about increasing their family income in case it doesn’t.
“We know that he will most likely get a 5 to 10 percent raise in March, but I have asked him to ask for 15 percent,” she said.
That pattern—cutting back and hoping for the best, but also planning for a possible higher inflation future—is the one Susan Hsieh is embracing as she watches costs rise at Costco. Ms. Hsieh lives in Armonk, NY, with her husband and two teenage children, and has cut back on buying frozen Chilean sea bass fillets because they are soaring in price, which is sad news for her family.
“That fish is really tasty,” she said.
Rising costs for goods and services have caused Ms. Hsieh, who works at a branch of the US Treasury Department, also urged to ask for higher pay this year. She knew that the 2.2 percent increase she would get as a typical cost-of-living adjustment wouldn’t keep up with inflation. She finished just shy of a 5 percent raise.
“I think I’m going to ask again,” she said of her salary negotiations for the coming year, assuming inflation continues.
Bacon buyer Mr Burnett could provide the clearest illustration of why expectations for faster inflation could pose problems for the Fed if they start to take off in earnest. For him, the magnitude of the current price changes makes it hard to believe that inflation will slow down any time soon.
Mr Burnett, who is retired, is considering making changes to his life accordingly. He co-owns a Florida condominium with his sister, and the unit’s maintenance costs are going up. Although he only rents out the apartment to tenants for part of the year, he will likely pass the full increase on to them.
He likes the tenants and doesn’t want to raise rents so much that he pushes them away, but he could also see him and his sister charge even more if they notice neighboring landlords driving up prices.
“I really want to make sure I’m maximizing my income,” he said, given the inflation. And he thinks other people will do the same, which makes him think inflation won’t go down anytime soon. “Once people have this mentality of ‘You can raise the prices and people will just pay it,’ you kind of go to the races.”