According to a New York Federal Reserve survey released yesterday, American consumers are increasingly concerned about their household financial situation amid growing speculation that inflation is again on the rise.
The central bank’s monthly Survey of Consumer Expectations found that consumers expect inflation to be higher in the year ahead, and fewer expect their households’ financial situations to be better off a year from now.
The Fed’s Survey of Consumer Expectations found that median inflation expectations increased at the one-year-ahead horizon to 3.4% from 3.2% and at the five-year-ahead horizon to 3.0% from 2.9%.
Meanwhile, the mean perceived probability of losing one’s job in the next twelve months increased by 0.4 ppt to 14.9%, above the trailing twelve-month average of 14.1%.
Surprisingly, while many Americans have expressed concerns over rising prices and the effect of President Donald Trump’s tariff policies, most have yet to change their spending habits.
Up until now, many experts believe this consumer resolve to maintain living standards is what has helped the United States avoid a significant economic slowdown.
Meanwhile, high food costs in particular are making it hard for American consumers to cover expenses in a typical month.
According to the latest consumer price index, grocery prices rose by 2.7% in August from a year earlier, the fastest annual pace since August 2023.
The personal consumption expenditures price index shows that while consumer spending stayed strong - even as inflation remains stubbornly elevated - Americans are now increasingly leaning on credit cards to buy essentials like gas and groceries.
Currently, groceries make up the bulk of credit card purchases for many Americans, with 46% citing it as their top spending category in a typical month, a TD Bank survey found.
“Few things drive Americans’ perception of the economy more than grocery prices,” said Matt Schulz, chief credit analyst at LendingTree.
“If people are convinced that those are just going to keep rising, it stands to reason that fewer people would think that their own household’s financial situation would be better off a year from now.”
However, despite the cautious Fed outlook, a separate report by KPMG suggests consumer spending is set to increase - heading into the peak shopping season at the end of the year – before it gets tapers off next year.
“The consumer is spending like a poker player with a small chip stack,” Duleep Rodrigo, KPMG’s U.S. consumer and retail leader, said in a statement.
“They know they can’t play every hand but are willing to go ‘all in’ on a promising hand with a high emotional payoff,” he said of projections that holiday spending will increase compared to last year.
“There’s also a psychological element where the consumer is managing a complex set of uncertainties,” Rodrigo said.
