People shop at a grocery store in Brooklyn on July 11, 2024 in New York City.
Spencer Platt | Getty Images
Consumers became more confident in July that inflation will be less of a problem in the coming years, putting expectations for the next three years at a new low, the New York Federal Reserve reported Monday.
The latest sentiment from the monthly survey of consumer expectations suggests that respondents see inflation remaining high over the next year, but then declining in the two years after that.
In fact, the three-year portion of the survey showed that consumers expect an inflation rate of just 2.3%, down 0.6 percentage points from June and the lowest in the survey's history, which dates back to June 2013.
The results come as investors worry 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, with consumers and businesses adjusting their behavior if they believe prices and labor costs are likely to continue rising.
On Wednesday, the Labor Department will release its monthly reading on inflation, the consumer price index, which is expected to show a 0.2% increase in July and a 3% annual rate, according to Dow Jones estimates. That’s still a full percentage point short of the Fed’s 2% target, but it’s about a third of what it was two years ago.
Markets have fully priced in the possibility of at least a quarter-point rate cut in September and a strong possibility that the Fed will cut rates by a full percentage point by the end of the year.
While medium-term expectations improved, inflation expectations over the one-year and five-year horizons remained unchanged at 3% and 2.8%, respectively.
However, there was some other good news regarding inflation in the survey.
Survey participants expect gas prices to rise 3.5% over the next year, about 0.8 percentage points less than in June, and food prices to rise 4.7%, about 0.1 percentage points less than the previous month.
Additionally, household spending is expected to rise by 4.9%, which is about 0.2 percentage points lower than June and the lowest reading since April 2021, the same time the current inflation rise began.
By contrast, expectations for medical care, college tuition and rent costs rose. College cost expectations rose to 7.2%, up 1.9 percentage points, while the rent component — which has been particularly troubling to Fed officials who had been expecting housing costs to fall — is seen rising 7.1%, or 0.6 percentage points more than in June.
Employment expectations rose, despite the higher unemployment rate. The odds of losing a job in the next year fell to 14.3%, down half a percentage point, while expectations of voluntarily leaving a job, an indicator of workers’ confidence in labor market opportunities, rose to 20.7%, up 0.2 percentage points from the highest reading since February 2023.
