US 1-Year Expected Inflation at 4.7%... Rebounds Again

U.S. consumers' expected inflation rate for the next year has rebounded.

According to the March consumer outlook survey released on the 10th (local time) by the New York Federal Reserve Bank, the expected inflation rate for the next year was recorded at 4.7%. This is an increase from 4.2% in the previous month. It is the first time since October last year that the one-year expected inflation rate has risen compared to the previous month.

Experts view this rebound in expected inflation as another variable that could affect the Federal Reserve's efforts to lower inflation. Economic media CNBC reported, "This contradicts officials' statements expecting inflation to subside as interest rate hikes continue," adding, "In the recent economic outlook released by the Fed, inflation is projected to fall to 2.5% in 2024."

According to the Chicago Mercantile Exchange (CME) FedWatch, the current federal funds futures market reflects more than a 71% chance that the Fed will implement a 0.25 percentage point baby step rate hike at the May Federal Open Market Committee (FOMC) meeting. Meanwhile, the possibility of a rate hold has dropped from the 42% range a week ago to the 28% range.

Moreover, this week is scheduled for the release of key inflation indicators such as the March Consumer Price Index (CPI) and Producer Price Index (PPI). The March CPI increase is estimated to rise 5.1% year-over-year, down from 6% in the previous month to the 5% range. However, if inflationary pressures exceed market expectations, as seen in the rebounded expected inflation, caution around Fed tightening is bound to intensify. In particular, the market remains wary of persistently sticky core inflation. The minutes of the March FOMC meeting will also be released on the 12th.

The medium-term expected inflation rate released on the same day also rose slightly. The expected inflation rate over the next three years, as anticipated by U.S. consumers, was 2.8%, 0.1 percentage points higher than the previous month, significantly exceeding the Fed's target of 2%. This indicates that achieving price stability even three years from now is seen as difficult. The five-year expected inflation rate was 2.5%. Although it fell by 0.1 percentage points from the previous month, it still suggests that it will take at least five years for U.S. inflation to approach the 2% target.