By Michael S. Derby
(Reuters) – Americans said last month that they are expecting notably weaker inflation pressures over coming years, the New York Fed said Monday in its latest Survey of Consumer Expectations.
The bank reported that respondents foresee a record month-to-month drop in inflation a year from now, with inflation expected to rise by 5.2% versus the 5.9% projected increase in October. The New York Fed survey began in 2013.
Meanwhile, the expected level of inflation three years from now moved to 3%, from October’s 3.1%, while five years from now, the public expects inflation at 2.3%, from 2.4% the prior month.
The one-year ahead expected inflation reading was also the lowest of the year. It came as the respondents said in the report that they are expecting smaller price rises for a range of key goods and services. In November, survey respondents said gasoline prices a year from now will be up by 4.7%, down from October’s expected 5.3% rise.
The survey also found a big expected drop in food prices a year from now. Home prices are also expected to show a slightly slower pace of gains and be up by 1% a year from now, the lowest such reading since May 2020, according to the New York Fed.
The drop in the expected path of inflation arrives just ahead of this week’s Federal Reserve policy meeting, where officials are widely expected to moderate the pace of their very aggressive campaign of rate rises and lift their overnight target rate by half a percentage point as they seek to lower the highest levels of inflation seen in 40 years. The Fed’s inflation target is 2%.
The Fed is expected to press forward with rate rises after the December meeting as price pressures have remained relatively resistant to rising short-term rates, which in theory should cool inflation. One reason why the Fed is raising rates so aggressively is because it doesn’t want high price gains to become embedded in the economy.
The expected path of inflation is a key variable in that process. Fed officials believe that where the public expects price pressures to go in the future exerts a strong influence on where they are now.
Central bankers are likely to take some solace from the New York Fed report as they consider moving to a slower pace of rate increases. In June, an unexpected jump in inflation expectations proved to be a key factor that shifted the central bank toward what proved to be a supersized path of rate increases.
The report also found rising optimism about the future of hiring and personal finance. Respondents said in November they see household incomes rising by 4.5%, from October’s 4.3%, a record-high reading.
(Reporting by Michael S. Derby; Editing by Andrea Ricci)
