Consumers See No Inflation Relief and That Credit’s No Sure Thing

Inflation’s steady at the moment, on its way to ticking up … and credit’s tougher to come by.

The Federal Reserve Bank of New York’s Center for Microeconomic Data released the September 2023 Survey of Consumer Expectations on Tuesday (Oct. 10), that show a resignation that inflation’s a fact of life over the short and medium term.

Median inflation expectations increased by 0.1% and 0.2% as measured across the one- and three-year horizons to 3.7% and 3%, respectively, up a bit from August’s expectations. And, notably, among the categories of spending where we might see some outsized price gains: Median year-ahead expected price changes for food increased by 0.3% to 5.6%.

Household Income Not Keeping Pace

That inflationary line item far outpaces the expected growth in household income, where respondents foresee 0.1% growth over that same timeframe, to 3%. The Fed also noted that this reading is below the 12-month trailing average of 3.5%. And at the same time, spending, overall, is expected to grow by 5.3%.

All of which points to a bit of a gap, or at least some pressure tied to … how to pay for it all.

Spending and inflation are outpacing take-home pay, which means that credit needs to fill the gap. And yet households see credit as harder to obtain than had been seen a year ago. Respondents’ views about future credit availability deteriorated slightly.

The expectations data, we note, differs from the CPI Index, which is a reading of where prices are in the here and now. Expectations, are of course fueled a bit by the here and now. We take what we see and experience and use it to make predictions about what’s to come. And as Karen Webster noted in a recent column,  we’ve all felt the sting of real price increased that have touched about 20% since just before the pandemic began. CPI increases might be moderating, per the headlines — but it doesn’t feel like it, so that’s why we expect inflation’s in for the longer haul.

Some Warning Signs

In the midst of the pressures, and as the holiday season’s settling in — PYMNTS Intelligence sees the next few months as among the most financially stressful of the year, due to spending on presents and events. Perhaps it’s little wonder, then, that more than 40% of consumers will look to rely more often on installment plans this year.

But the Fed’s data has some warning signs: The “average perceived probability” of missing a minimum debt payment over the next three months increased by 1.4 percentage points to 12.5%, which the Fed said is the highest reading since May 2020.

“The increase was largest” for respondents below age 40, with some college education, and those with an annual household income below $50,000, said the Fed. Our research shows that three quarters of consumers below this income level live paycheck to paycheck.