Inflationary Woes

U.S. consumers see inflation continuing to rise in the year ahead but expect to see a more moderate pace over the medium to longer term. That’s according to the Federal Reserve Bank of New York’s Center for Microeconomic Data’s June Survey of Consumer Expectations, which polls more than 1,300 households.

The survey showed that median one-year-ahead inflation expectations increased 6.8%, from 6.6% in May — that marked a new high for the survey. But the median three-year-ahead inflation expectations decreased to 3.6% from 3.9%. The median five-year-ahead inflation expectations declined to 2.8% from 2.9%.

The survey also revealed that home price growth expectations declined sharply, along with year-ahead spending growth expectations.

The median expected change in home prices one year from now dropped sharply to 4.4% from 5.8%. This is the lowest reading of the series since February 2021, the New York Fed said. The decline, the second largest recorded in the survey’s series — second only to the sharp drop at the onset of the pandemic — was broad, based across age, education and income groups. The decline was largest in the West census region.

According to an analysis by insurtech Policygenius, home insurance premiums are rising even faster than inflation.

From May 2021 to May 2022, the price of goods and services increased 8.6% in the U.S. In the same time period, home insurance costs outpaced inflation in all but one of the states Policygenius analyzed, with 13 states seeing average premium increases more than 50% higher than the current inflation rate.

During the same period, 90% of homeowners saw annual premium increases, which average 12.1% compared to a year ago. The average increase was $134, according to the Policygenius Home Insurance Pricing Report. The study was limited to the 25 states for which Policygenius had a statistically significant number of policies. In all, it looked at 8,698 active home insurance policies quoted for renewal from May 2021 to May 2022.

In multiple states, Policygenius found that home insurance costs increased at more than double the rate of inflation. Over the past 12 months, home insurance premiums are up as much as 18.5% in Arkansas, 18.1% in Washington, and 17.5% in Colorado. New York was the only state in Policygenius’ analysis with a premium increase lower than the inflation rate, at 8%. Homeowners in New York saw the lowest increases at renewal since last year, with an average premium hike of $56. Oklahoma saw the largest premium increases, with policyholders seeing their premiums go up $257 on average.

This isn’t great news as the New York Fed reported in its survey that the median expected growth in household income increased by just 0.2 percentage point in June to 3.2%. Perceptions about households’ current financial situations compared to a year ago deteriorated, with more respondents reporting being financially worse off.

Respondents were also more pessimistic about their household’s financial situation in the year ahead, with fewer (more) respondents expecting their financial situation to improve (deteriorate) a year from now.