Consumer inflation expectations rise sharply in March

The median rate of perceived inflation over the previous 12 months increased to 3.5 percent in March, up from 3.0 percent in February.

Median expectations for inflation over the next 12 months rose notably to 4.0 percent in March, from 2.5 percent previously.

Similarly, expectations for inflation three years ahead increased from 2.5 percent to 3.0 percent.

Even longer-term inflation expectations for five years ahead saw a slight increase, moving from 2.3 percent to 2.4 percent.

Uncertainty surrounding short-term inflation expectations also intensified during March.

A consistent trend since 2023 shows respondents in lower-income quintiles reporting slightly higher inflation perceptions and short-horizon expectations compared to those in higher-income groups.

However, the overall movement of inflation perceptions and expectations remained aligned across all income groups, with each reporting increased inflation perceptions and one-year-ahead expectations in March.

Younger respondents (aged 18-34) continued to report lower inflation perceptions and expectations than older age groups (35-54 and 55-70).

Expectations for economic growth over the next 12 months became more pessimistic, decreasing to -2.1 percent in March from -0.9 percent in February.

Concurrently, expectations for the unemployment rate 12 months ahead increased to 11.3 percent in March, up from 10.8 percent.

Consistent with prior months, lower-income households anticipated the highest unemployment rate in 12 months (13.7 percent), while higher-income households expected the lowest rate (9.7 percent).

Consumers generally expected the future unemployment rate to be marginally higher than the perceived current rate of 10.6 percent, indicating a broadly stable labor market outlook.

Nominal income growth expectations for the next 12 months remained unchanged at 1.2 percent.

However, perceived nominal spending growth over the previous 12 months increased to 5.1 percent from 4.6 percent, and expected nominal spending growth for the next 12 months rose to 4.1 percent from 3.5 percent, reaching its highest level since May 2023.

Households in the lowest three income quintiles projected slightly higher spending growth than those in the top two quintiles.

Expectations for home price growth over the next 12 months increased to 3.7 percent from 3.6 percent, with lower-income households expecting higher growth.

Mortgage interest rate expectations for the next 12 months also rose to 4.9 percent from 4.7 percent, with lower-income households expecting higher rates.

The net percentage of households reporting tighter access to credit over the previous 12 months increased to a level last seen in April 2024, and expectations for tighter credit conditions over the next 12 months reached their highest point since January 2024.