WASHINGTON (Reuters) – U.S. consumers expect inflation to rise over the next 12 months and beyond, likely reflecting concerns that broad tariffs promised by President-elect Donald Trump’s new administration could raise prices for households.
The University of Michigan survey shows that consumers’ one-year inflation expectations rose from 2.8% in December to 3.3% in January, the highest level since May. That lifted annual inflation expectations above the range of 2.3%-3.0% in the two years prior to the COVID-19 pandemic.
Longer-term inflation expectations rose to 3.3% from 3.0% in December, the highest level since June 2008.
“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 Joanne Hsu, director of Surveys of Consumers.
In addition to imposing or massively raising tariffs on imports, Trump has also pledged to deport millions of undocumented immigrants, a policy that economists have warned would fuel inflation.
Anger over high prices propelled Trump to victory in the Nov. 5 election. Trump promised during his campaign to lower prices.
The strong rise in inflation expectations contributed to the strength of the labor market and reinforced the Federal Reserve’s message of fewer interest rate cuts this year.
Economists expect the US central bank to keep its key overnight interest rate unchanged at between 4.25% and 4.50% for the first half of the year.
Since the start of the easing cycle in September, the Fed has cut its policy rate by 100 basis points. Last month, the country forecast only two quarter-point interest rate cuts this year, compared to the four it forecast in September.
Rising inflation expectations have played a role in the policy rate hikes of 5.25 percentage points in 2022 and 2023. Concerns about higher prices are hurting consumer confidence, which soared in the wake of Trump’s victory.
The University of Michigan’s preliminary consumer confidence index stood at 73.2 this month, up from a final reading of 74.0 in December.
“We see evidence in this survey that consumers expect tariffs to raise prices of many types of goods,” said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.
“If you read between the lines, concerns about the possible impact of some of Donald Trump’s economic policies also appear to be eroding confidence.”
In addition, the LSEG/Ipsos Primary Consumer Sentiment Index fell 3.2 points to 54.4 in January, after hitting a more than three-year high in December.
