WASHINGTON (Reuters) – U.S. consumers expect inflation to rise over the next 12 months and beyond, likely reflecting concerns that sweeping import tariffs promised by President-elect Donald Trump’s new administration could push up household prices.
A University of Michigan survey showed that consumers’ expectations of one-year inflation rose to 3.3% in January, the highest level since May, from 2.8% in December. That lifted 12-month inflation expectations above the 2.3%-3.0% range seen in the two years before the COVID-19 pandemic.
Long-term inflation expectations rose to 3.3%, the highest level since June 2008, from 3.0% in December.
“In both the short and long term, inflation expectations rose across multiple demographic groups, with particularly strong increases among lower-income consumers and independents,” said Surveys of Consumers director Joanne Hsu.
In addition to imposing or massively raising tariffs on imports, Trump also promised to deport millions of undocumented immigrants, a policy that economists warned would fuel inflation.
Anger over high prices propelled Trump to victory in the Nov. 5 election. During the campaign, Trump promised to lower prices.
A sharp rise in inflation expectations added to the strength of the labor market, reinforcing the Federal Reserve’s message of fewer interest rate cuts this year.
Economists expect the US central bank to keep its benchmark overnight interest rate unchanged in the range of 4.25%-4.50% through the first half of the year.
The Fed has cut its benchmark rate by 100 basis points since starting its easing cycle in September. Last month, it forecast just two quarter-point rate cuts this year, compared to the four it forecast in September.
High inflation expectations are factored into benchmark rate hikes of 5.25 percentage points in 2022 and 2023. Concerns about higher prices are denting consumer sentiment, which has soared since Trump’s victory.
A preliminary reading of the University of Michigan’s overall index of consumer sentiment was 73.2 this month, compared with a final reading of 74.0 in December.
“We see evidence in this survey that consumers expect tariffs to increase the prices of many types of goods,” said Oliver Allen, senior US economist at Pantheon Macroeconomics.
“Reading between the lines, concerns about the potential impact of some of Donald Trump’s economic policies also appear to be eroding confidence.”
Separately, the LSEG/Ipsos Primary Consumer Sentiment Index fell 3.2 points to 54.4 in January, after reaching its highest level in more than three years in December.
“The decline in mood was driven by reduced comfort during large and household purchases, as well as
reduced confidence in investing in the future and an increase in the number of those who lost their jobs,” said Johnny Sawyer,
senior research manager at Ipsos (EPA:).
“It remains to be seen whether this month’s decline is the start of a decline or just a blip on the radar.”
