HomeLatest NewsConsumers expect inflation to drop, a big win for the Fed

Consumers expect inflation to drop, a big win for the Fed

Shoppers inside a grocery store in San Francisco, California, U.S., on Monday, May 2, 2022.

David Paul Morris Bloomberg | Getty Images

Consumers’ outlook for inflation fell significantly in July amid a sharp fall in gas prices and a growing belief that future increases in food and shelter will also moderate.

The New York Federal Reserve’s monthly Survey of Consumer Expectations showed that respondents expect inflation to run at a pace of 6.2% next year and 3.2% for the next three years.

While those numbers are still high by historical standards, they mark a big drop-off from the corresponding 6.8% and 3.6% results from the June survey.

Through June, food prices rose 10.4% over the previous year, according to the Bureau of Labor Statistics. They are still expected to climb 6.7% over the next 12 months, but that is a decline from the June survey of 2.5 percentage points, the biggest decline in the data series going back to June 2013.

Similarly, respondents see gas prices, which rose 60% in the past year, increasing at a pace of just 1.5% over the next year, a slide of 4.2 percentage points from June, the second largest monthly decline in the survey’s history.

The price of regular gas fell about 67 cents a gallon last month, though it was 87 cents higher than a year ago, according to AAA. Commodity prices overall fell significantly.

Finally, home prices are expected to rise 3.5% from 4.4% in June, the smallest expected gain since November 2020.

Five-year inflation expectations also slipped, falling 0.5 percentage points to 2.3%.

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The results come as the Fed has been aggressively raising interest rates to reduce ongoing inflation to the highest level in more than 40 years. The central bank has raised benchmark rates four times for a total of 2.25 percentage points in 2022, and market prices indicated a third consecutive 0.75 percentage point hike in September, according to CME Group data.

However, New York Fed results from July could give policymakers reason to hold back if not in September and later in the year if inflation data cooperates. The Fed targets inflation of 2% over the long term, so the levels projected in the survey remain above the central bank’s comfort level.

Over the weekend, Fed Governor Michelle Bowman said she doesn’t expect inflation to ease anytime soon and sees the need to keep pushing rates higher. San Francisco Fed President Mary Daly echoed that sentiment, saying the hikes are “far from done.”

The comments came after the BLS reported a much higher number for payroll growth – 528,000 – and wages on Friday, with average hourly earnings jumping 5.2%.

The New York Fed survey also showed that overall household spending growth is expected to cool to 6.9% for next year. This is a relatively high number for a long period but below the record-high 9% result from May. The 1.5 percentage point monthly decline was the largest in the survey’s history.

Consumers also became slightly more optimistic about stock prices in a month that saw the S&P 500 rise 9%, with 34.3% now expecting higher prices over the next 12 months.

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