Last week markets finally priced in the fact that inflation is not going away easily or soon. Consumers are feeling inflation, but may also be overly optimistic about the future. The most recent Survey Data from the New York Fed shows consumers' 1 year inflation expectation fell from 6.8 to 5.7% last month and they expect inflation to be back to 2.8% within 3 years. Their optimism is probably due to falling oil prices. But expectations on prices aren't totally consistent with their expectations for rent. Survey respondents expect rent to go up 11.5% in the next year and 5.2% over the next 3 years. To some extent rents are backward looking, but because leases normally last a year or more, they can be forward-looking, which suggests where it counts, inflation may be getting more persistent than consumers realize.
Source: NYFED
Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.
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