People shop at a grocery store in Brooklyn on July 11, 2024 in New York City.
Spencer Platt | Getty Images
Consumers grew more confident in July that inflation will be less of a problem in the coming years, according to a report from the New York Federal Reserve that showed a three-year outlook at new levels.
The latest outlook from the monthly Survey of Consumer Expectations shows that respondents see inflation staying up in the coming year but then declining in the next few years.
In fact, the three-year part of the survey shows consumers expect inflation of only 2.3%, down 0.6 percentage points from June and the lowest in the history of the survey, going back to June 2013.
The results came with investors on edge about the state of inflation and whether the Federal Reserve could cut interest rates as soon as next month. Economists see expectations as the key to inflation because consumers and business owners will adjust their behavior if they think prices and labor costs will continue to rise.
On Wednesday, the Labor Department will release its own monthly inflation reading, the consumer price index, which is expected to increase 0.2% in July and the annual rate of 3%, Dow Jones estimates. That’s still a full percentage point short of the Fed’s 2% target, but about a third of what it was two years ago.
Markets have fully priced in the possibility of at least a quarter percentage point cut in September and a strong possibility that the Fed will cut by a full percentage point by the end of the year.
While the medium-term outlook has improved, inflation expectations over the one- and five-year horizons remain unchanged at 3% and 2.8%, respectively.
However, there was some other good inflation news in the survey.
Respondents expect gas prices to increase by 3.5% next year, 0.8 percentage points less than in June, and food to see a rise of 4.7%, which is 0.1 percent lower than last month.
In addition, household spending is expected to increase by 4.9%, which is 0.2 percentage points lower than in June and the lowest reading since April 2021, at the time when the current surge in inflation began.
Conversely, expectations are rising for medical care, college education and rental costs. Prospects for tuition fees rose 7.2%, up 1.9 percentage points, while the rent component – which is particularly nettlesome for Fed officials looking for housing costs to fall – appeared to rise 7.1%, or 0.6 percentage points more than June.
Hopes for employment are bright, even as the unemployment rate rises. The probability of losing a job in the next year fell to 14.3%, down half a percentage point, while the expectation of leaving a job voluntarily, a proxy for workers’ confidence about opportunities in the labor market, rose to 20.7%, a 0.2 percentage point increase for highest reading since February 2023.
