Shoppers carry bags of purchased goods at King of Prussia Mall on December 11, 2022 in King of Prussia, Pennsylvania.
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According to a survey by the New York Federal Reserve released on Monday, consumers became more optimistic about inflation in November on expectations that both food and energy price increases would be less pronounced in the coming year.
The central bank’s consumer expectations survey showed that respondents expect a year-on-year inflation rate of 5.2%, down 0.7 percentage points from the October reading.
That’s the lowest level for this reading since August 2021 — the early days of the inflationary spurt that gripped the economy and pushed the Fed into a series of aggressive rate hikes that are likely to continue this week. The most recent annual inflation rate, as measured by the consumer price index, was 7.7% in October.
Adding to the brightened near-term outlook, the inflation rate forecast three years from now declined slightly to 3%, down 0.1 percentage point from the previous month. A relatively recent series of data reflecting the five-year outlook fell the same level to 2.3%.
The poll comes as Fed officials have hinted at the likelihood of a 0.5 percentage point hike in interest rates this week when policymakers wrap up their two-day meeting on Wednesday. Should that happen, it would be the seventh rate hike of the year and would bring the Fed’s short-term interest rate to a target range of 4.25% to 4.5%, the highest in 15 years.
However, inflation news has gotten at least marginally better in recent days, a trend that would be reflected in post-meeting communications from the Federal Open Market Committee, which sets rates, and Chair Jerome Powell.
Respondents to the New York Fed survey said they expect gas prices to rise 4.7% and food prices to rise 8.3% in the coming year. While these increases are still not consistent with an economy where inflation is at the Fed’s target rate of 2%, they are corresponding declines of 0.6 percentage point and 0.8 percentage point from the previous month.
The survey also found that wages are expected to increase by 2.8% for the 12-month period, down 0.2 percentage point monthly and at the lowest level also dating back to August 2021.
However, household income is expected to rise by 4.5%, with the monthly increase of 0.2 percentage point taking the outlook to its highest level ever in a data series dating back to June 2013.
The unemployment outlook is indeed improving, with 42.2% of respondents saying they believe the unemployment rate will be higher in a year’s time. The 0.7 percentage point drop came even as Fed officials have said they expect their efforts to slow the economy will hurt the job market, which currently has an unemployment rate of 3.7%.
Workers’ expectations of being able to find a job if they lose their current job also rose to 58.2%, the highest level since February 2020, just before the full force of the Covid pandemic hit.
The next key inflation reading comes Tuesday with the Labor Department’s November CPI. Economists polled by Dow Jones expect the report to show a monthly increase of 0.2% and a yearly increase of 7.3%. Excluding food and energy, the core CPI forecasts are 0.4% and 6.1%, respectively.