Consumers in April raised their expectations for near- and long-term price increases, driven by higher inflation in home prices along with fuel and energy, according to a New York Federal Reserve survey on Monday.
The central bank's New York district reported in its monthly survey of consumer expectations that expectations increased across one- and five-year horizons as respondents expressed little confidence that the Fed would reach its 2% inflation target any time soon.
On a one-year basis, expectations rose to 3.3%, up 0.3 percentage points from March and the highest since November 2023. For the five-year forecast, expectations rose to 2.8%, up 0.2 percentage points. However, over the three-year horizon, expectations fell to 2.8%, down 0.1 percentage point.
The results mirror a University of Michigan sentiment poll released Friday that showed the one-year forecast for May at 3.5%, also up 0.3 percentage points, while the five-year forecast rose to 3.1%.
All readings are well ahead of the Fed's 2% target and reflect the stubborn nature of inflation this year after a significant deflationary trend in 2023.
Inflationary pressures are expected to come from a wide range of sources. However, the expected increases in housing prices are particularly troubling for policymakers who expected lower housing costs this year.
Survey respondents indicated that they expect average home prices to grow by 3.3% over the next year, an increase of 0.3 percentage points from the level that has been flat for seven months. This was also the highest reading since July 2022, and was boosted by those with a high school diploma or less, a lower-income group of particular concern to Fed officials during the period of higher inflation that kicked off in early 2022.
Along with the expected rise in home costs, respondents see rents rising by 9.1%, up 0.4 percentage points from the previous month.
Fed officials at their latest meeting again stuck to the line on interest rates and said they need to see more convincing evidence that inflation returns to the 2% target before cutting.
Federal Reserve Vice Chairman Philip Jefferson said Monday that policymakers “continue to look for additional evidence that inflation will return to our 2% target, and until we get there, I think it is appropriate to keep the interest rate in the restricted area.”
Consumers see Medicare rising 8.7% over the next year, up 0.6 percentage points from the March survey. They expect food prices to rise by 5.3% (up 0.2 percentage points from a month ago), gasoline to rise by 4.8% (up 0.3 percentage points), and college tuition to rise by 9%, up 2.5 percentage points.
The employment outlook in the survey was mixed, with high unemployment rates despite a low probability of job loss. However, mobility expectations fell, with 50.9% expecting to find a job quickly after losing their current job, the lowest reading since April 2021.
The poll comes two days before the Department of Labor's closely watched report on the Consumer Price Index, which is scheduled to be released on Wednesday. Economists surveyed by Dow Jones expect the CPI for all items to show a 3.4% increase for April from a year earlier, down 0.1 percentage point from March. Core inflation, excluding food and energy, is expected to reach 3.6% over 12 months.
