NY Fed says consumers saw in August steep declines in future inflation



  • Ebbing inflation expectations could point to moderating inflation over time

American consumers said in August that they are expecting notable declines in future levels of inflation, a report from the Federal Reserve Bank of New York said Monday.

The bank said in its August Survey of Consumer Expectations that one year from now, households see inflation at 5.7%, down from the 6.2% they predicted in the July survey. Three years from now, survey respondents expect to see inflation at 2.8%, down from the 3.2% seen in July.

The expected level of inflation over the longer run also eased. The report said five years from now, survey respondents see inflation at 2% as of August, down from July’s 2.3% forecast. In July, inflation was up by 6.3% from the same month a year ago, as measured by the personal consumption expenditures price index.

The decline in the expected path of inflation is likely to be welcome news for the Federal Reserve. The central bank has since March been implementing a series of aggressive interest-rate increases aimed at lowering the highest levels of inflation seen in 40 years. The Fed is almost certain to raise rates next week, with many analysts eyeing a 0.75 percentage point increase, matching similar sized moves in June and July.

The Fed hopes rate increases, which will likely continue after the September Federal Open Market Committee meeting, will lower demand and moderate inflation pressures. But many are worried that the path the Fed is on could send the economy into a downturn.

Fed officials believe that the public’s expected path of inflation exerts a strong influence on where price-pressure levels stand now. They have drawn some solace from the fact that longer-term inflation-expectation levels have remained relatively stable even in the face of surging inflation, which they see as evidence that the public believes price pressures will eventually moderate back to the Fed’s 2% target.

“It is very important that inflation expectations remain anchored," Federal Reserve Chairman Jerome Powell said last Thursday. “I think the evidence today is that if you look at longer-term expectations by households, businesses and forecasters and also markets, you’ll see that they are pretty well anchored around 2%," he said.

Some recent data has shown moderation in inflation, and the ebbing in inflation expectations could signal price pressures may soften further in coming months.

In the report, the New York Fed said expected price gains across key parts of the economy all softened in August. The expected level of home-price increases a year from now fell to 2.1% from 3.5% in July, marking the lowest reading since July 2020.

August’s decline in home-price rise expectations “was broad based across demographic groups and geographic regions," the bank said, adding “home price expectations have now fallen by nearly two-thirds since the April 2022 reading of 6.0%."

Expectations for gasoline, food and rent prices also moved lower in August, the report said. Meanwhile, “consumers were more optimistic about their future household income and financial situations," the report said.

This story has been published from a wire agency feed without modifications to the text

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