People shop at a grocery store in Brooklyn in New York City on July 11, 2024.
Spencer Platt |
Consumer confidence that inflation will become less of a problem in the coming years grew in July, and the three-year forecast hit a new low, according to a report from the New York Federal Reserve Bank released on Monday.
The latest results from the monthly consumer expectations survey suggest that respondents expect inflation to remain high next year but to decline in subsequent years.
In fact, the three-year portion of the survey found that consumers expect inflation to reach just 2.3%, down 0.6 percentage points from June and the lowest reading in the survey's history since June 2013.
The results raise concerns among investors about the inflation situation and whether the Federal Reserve might cut interest rates as early as next month. Economists see inflation expectations as a key factor, as consumers and businesses will adjust their behavior if they believe prices and labor costs will continue to rise.
On Wednesday, the U.S. Labor Department will release its own monthly inflation index, the Consumer Price Index. This is expected to rise by 0.2 percent in July and by 3 percent over the course of the year, according to Dow Jones estimates. While that is still a full percentage point away from the Fed's two percent target, it is still about a third of the level seen two years ago.
Markets have fully priced in the likelihood of a rate cut of at least a quarter of a percentage point in September, and there is a strong probability that the Fed will cut rates by a full percentage point by the end of the year.
While the medium-term outlook improved, inflation expectations for the next one and five years remained unchanged at 3% and 2.8% respectively.
However, there was some other good inflation news in the survey.
Those surveyed expect gas prices to rise by 3.5 percent next year, 0.8 percentage points less than in June. Food prices are expected to rise by 4.7 percent, 0.1 percentage points less than a month ago.
In addition, household spending is expected to increase by 4.9%, down 0.2 percentage points from June and the lowest since April 2021, around the time the current rise in inflation began.
In contrast, expectations for medical care, higher education and rent costs rose. The forecast for college costs jumped to 7.2 percent, up 1.9 percentage points, while rent – which has been particularly galling for Fed officials hoping for falling housing costs – is expected to rise 7.1 percent, or 0.6 percentage points more than in June.
Despite the rising unemployment rate, employment expectations have brightened. The perceived likelihood of losing one's job in the next year fell by half a percentage point to 14.3%, while the expectation of leaving the job voluntarily – an indicator of workers' confidence in labor market prospects – rose to 20.7%, an increase of 0.2 percentage points and the highest since February 2023.
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