2024-08-12 15:42:18
People shop at a grocery store in Brooklyn, New York City, July 11, 2024.
Spencer Pratt | Getty Images
Consumers grew more confident in July that inflation won’t be too much of a problem in the coming years, according to a report released Monday by the Federal Reserve Bank of New York that showed the three-year inflation outlook fell to a new low.
The latest views in the monthly survey of consumer expectations showed respondents believed inflation would remain high over the coming year but would fall back in subsequent years.
In fact, the three-year survey showed that consumers expected inflation to be just 2.3%, down 0.6 percentage points from June and the lowest level in the history of the survey since June 2013.
Investors are concerned about the state of inflation and whether the Federal Reserve will be able to cut interest rates as soon as next month. Economists say expectations are key to inflation because consumers and business owners will adjust their behavior if they believe prices and labor costs are likely to continue to rise.
On Wednesday, the Labor Department will release its monthly inflation data, the Consumer Price Index. Dow Jones estimates show the index is expected to rise 0.2% in July and 3% annually. That’s still a full percentage point away from the Fed’s 2% target, but about a third of what it was two years ago.
The market has fully anticipated the possibility that the Federal Reserve will cut interest rates by at least 25 basis points in September, and there is a high possibility that the rate will be cut by 1 percentage point before the end of the year.
While the medium-term outlook has improved, inflation expectations for one and five years remain unchanged at 3% and 2.8%, respectively.
However, there was some other good news on inflation in the survey.
Respondents expect gasoline prices to rise 3.5% in the next year, down 0.8 percentage points from June; food prices to rise 4.7%, down 0.1 percentage points from a month ago.
In addition, household spending is expected to grow 4.9%, 0.2 percentage points lower than in June and the lowest level since April 2021, when the current inflation surge began.
Conversely, expectations for health care, college and rent costs rose. College cost expectations rose 7.2%, 1.9 percentage points higher than in June, while rent — particularly troubling for Fed officials who have been hoping for lower housing costs — is expected to rise 7.1%, 0.6 percentage points higher than in June.
Despite the rise in the unemployment rate, employment expectations improved. The probability of being unemployed in the next year fell to 14.3%, down half a percentage point, while expectations of voluntary job losses (a measure of workers’ confidence in labor market opportunities) climbed to 20.7%, up 0.2 percentage points, the highest level since February 2023.
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