Long Term Inflation Fears Simmer at 4%

Consumers may be breathing a small sigh of relief, but they’re hardly celebrating. The University of Michigan’s latest “Current versus Pre-Pandemic Long-Run Inflation Expectations” update, released Friday, shows the median expectation for inflation over the next 5 years dipping to 4.0 % in June after topping out at 4.4 % in April. While that is a two-month pullback, June’s reading merely ties the hottest mark of mid-2022 and sits well above the Fed’s cherished 2 % target. The university’s survey for inflation next year sits even higher at 5%. Dr. Joanne Hsu, who directs the survey, cautioned that “ongoing developments and changes with economic policy” continue to cloud the outlook.

Digging deeper, the three-month moving average of the median remains elevated, still running higher than its 2022 crest. The mean expectation has also slipped for two straight months yet stands just above the 2022–23 highs, underscoring that most households see entrenched price pressures, not a fleeting blip. Even the 75th-percentile expectation, which stopped climbing in May, remains at its mid-2022 summit on a three-month basis. In other words, pessimism has eased at the margin, but the center of gravity for inflation thinking is still uncomfortably high.

The broader time series, which spans seven years of parallel web data, paints a telling picture: expectations sat quietly pre-pandemic, deteriorated through mid-2022, eased into late-2024, and surged again in early-2025. That pattern tracks the stop-go nature of fiscal and monetary experiments since 2020. While headline CPI prints have come off their highs, ordinary Americans apparently remain unconvinced that the purchasing power of their paychecks is on solid ground. Perhaps that skepticism explains why, on Thursday, gold touched an intraday record of $3,340 per ounce, trading within a tight $26.10 band even as equities bounced. 

For officials eager to declare victory, the report will not provide much ammunition.” Central bankers may relish the downtick, but with three-month averages for the median, the 75th percentile, and the tail-risk cohort still at or above 2022 peaks, any victory lap looks premature. Add in spending promises and a federal balance sheet north of $34 trillion, and the odds favor higher, not lower, long-run inflation sentiment.

All told, a modest cooling in expectations is welcome, yet consumers haven’t forgotten their recent bout with sticker shock. Until policy makers show more discipline—and perhaps a little humility—the smart money will keep a wary eye on the price of everyday goods, and maybe an even keener eye on the shiny metal that never needs a government’s blessing.