Shoppers inside a grocery store in San Francisco, California, United States, on Monday, May 2, 2022.
David Paul Morris | Bloomberg | Getty Images
Consumer expectations for inflation dropped significantly in July amid a sharp drop in gas prices and a growing belief that the rapid rise in food and housing will also subside going forward.
The monthly survey of consumer expectations released by the Federal Reserve in New York showed that respondents expect an inflation rate of 6.2% over the next year and a rate of 3.2% for the next three years.
While these numbers are still very high by historical standards, they are a significant decrease from the 6.8% and 3.6% of the June survey results.
During June, food prices rose 10.4% over the past year, according to the Bureau of Labor Statistics. They are still expected to rise 6.7% over the next 12 months, but that’s a drop from the June survey of 2.5 percentage points, and the biggest drop in a series of data going back to June 2013.
Similarly, respondents see that gas prices, which have risen 60% over the past year, will rise at a pace of only 1.5% over the next year, down 4.2 percentage points from June, the second largest monthly drop in the survey’s history.
The price of regular gas is down about 67 cents a gallon over the past month although it is still 87 cents higher than a year ago, according to the AAA. The prices of basic commodities in general are also declining significantly.
Finally, home prices are expected to rise 3.5% from 4.4% in June, the lowest expected rise since November 2020.
Five-year inflation expectations also eased, falling 0.5 percentage point to 2.3%.
The results come as the Federal Reserve aggressively raised interest rates to bring down inflation that has reached its highest level in more than 40 years. The central bank in 2022 raised benchmark interest rates four times for a total of 2.25 percentage points, and market rates indicate an increase of 0.75 percentage points in a row in September, according to CME Group data.
However, the New York Fed’s results for July may give policy makers reason to pull back if not in September, then later in the year if inflation data cooperates. The Fed targets inflation at 2% over the long term, so levels projected in the poll remain well above the central bank’s comfort level.
Over the weekend, Fed Governor Michelle Bowman said she does not expect inflation to fall anytime soon and sees that The need to keep pushing prices up. Mary Daly, president of the San Francisco Federal Reserve, echoed those sentiments, saying the increases were “far from being realized”.
Those comments came after BLS reported on Friday Much higher numbers As for salary growth – 528,000 – and wages, average hourly earnings jumped 5.2%.
The New York Fed survey also showed that total household spending for the coming year is expected to fall to 6.9%. This is also a relatively high number in the long run but well below the record high of 9% from May. The monthly drop of 1.5 percentage points is the largest in the survey’s history.
Consumers were also slightly more optimistic about stock prices during the month that saw the S&P 500 index up 9%, with 34.3% expecting a price hike over the next 12 months.
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