Americans Now Expect 4.3% Inflation—An Alarming Jump In Just 3 Months

Americans’ inflation expectations have surged to 4.3%, marking one of the sharpest three-month increases since 1979, according to new data that has economists concerned about price stability.

The University of Michigan’s consumer survey for January shows median one-year inflation expectations have climbed 1.7% since November’s election, The Economist reported on Tuesday. It represents a joint-largest quarterly increase in over four decades, rivaling periods when inflation hit double digits.

Market indicators reflect similar concerns. One- and two-year breakeven inflation rates, calculated from Treasury yield differences, have risen 1.7% and 0.8% respectively since November.

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The jump exceeds historical patterns. According to The Economist’s model, approximately 80% of variation in quarterly inflation expectations typically correlates with current inflation rates and fuel prices. If the traditional relationships held, expectations would be nearly a full percentage point lower.

Analysts attribute the disconnect primarily to President Donald Trump‘s tariff rhetoric. Consumer uncertainty about inflation has reached its highest level since 1980, with those opposed to tariffs expecting inflation near 5%.

“This is the riskiest period for inflation policy since the early Biden administration,” former Treasury Secretary Larry Summers told The Economist, referencing the period preceding four-decade inflation highs.

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Signs suggest the expectations may become self-fulfilling. American wages grew at an annualized 5.9% in January, while over 20% of Michigan survey respondents—the highest proportion in three decades—report accelerating major purchases to beat anticipated price increases.

Federal Reserve officials have expressed concern. “When inflation expectations become unanchored, central banks often can restore price stability only at a great economic cost,” Dallas Fed President Lorie Logan recently warned. The uncertainty, she added, serves as “a reminder that expectations won’t stay anchored forever on their own.”

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Longer-term inflation expectations show mixed signals. While the “five-year, five-year forward” measure favored by central bankers remains stable, five-year consumer expectations have climbed to 3.3%, exceeding recent peaks.

A partisan divide has emerged in longer-term outlooks, with Democrats now expecting 4.2% average price increases over the next five years. Research suggests similar Republican concerns during the pandemic contributed to subsequent inflation.

Some analysts believe Trump’s criticism of Federal Reserve Chairman Jerome Powell, including demands for interest rate cuts, has heightened Democrats’ inflation concerns.

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