Within the newest survey by the New York Fed, the inflation outlook is at a two-year low

Shell gas station prices displayed on May 30, 2023 in Austin, Texas.

Brandon Bell | Getty Images

Consumers are growing more optimistic that inflation will fall, according to a survey by the New York Federal Reserve released Monday.

The central bank’s monthly survey of consumer expectations for May showed that one-year inflation expectations fell 0.3 percentage point to 4.1%.

That’s the lowest full-year outlook since May 2021, just as inflation began to climb to its highest level in more than 41 years. The one-year expectation at the time was 4%; In fact, CPI inflation would rise to 8.6% a year later.

In the current case, the survey is in line with general expectations that while prices are still well above the Fed’s annual target of 2%, the general trend is lower due to some of the Covid pandemic-specific factors such as outsized demand for expensive goods and the supply chain Constipation subsides.

Nevertheless, average inflation expectations rose slightly over the longer term. The three- and five-year prospects rose 0.1 percentage points to 3% and 2.7%, respectively.

Part of the rise in inflation is due to rising wages, and the survey showed that the outlook is deteriorating there too. Expected full-year earnings growth fell to 2.8%, down 0.2 percentage point since April and in line with the overall range since September 2021.

The survey also reflected how resilient the job market was.

Expectations of losing a job fell 1.3 percentage points to 10.9%, the lowest level since April 2022. The average likelihood of leaving the job also fell by half a percentage point to 19.1%.

The job strength came despite a string of 10 Fed rate hikes, largely aimed at correcting a labor force imbalance that saw 1.8 job openings for every available worker in April. Markets are largely expecting the Fed to refrain from raising interest rates at this week’s meeting as policymakers digest the impact of their moves on the economy.

The survey also showed that household finances remain solid. Spending is expected to increase by 5.6% next year, up 0.4 percentage points from April but below the trailing 12-month average of 6.7%.

Correction: The three- and five-year prospects both rose 0.1 percentage points to 3% and 2.7%, respectively. In an earlier version, the move was incorrectly specified.

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