February 7, 2023

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The New York Fed survey shows that consumers see inflation, spending, and cooling

The New York Fed survey shows that consumers see inflation, spending, and cooling

People shop for merchandise at a bar in Nashville, Tennessee, on December 22, 2022, ahead of Winter Storm Elliott.

Seth Herald | AFP | Getty Images

Consumers are seeing the burden of inflation ease while expecting a significant decline in their spending, according to a closely watched survey released Monday by the New York Federal Reserve.

The December Central Bank District monthly survey of consumer expectations showed that one-year inflation expectations fell to 5%, down 0.2 percentage points. from the previous month The lowest level since July 2021.

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While this pace would still be well above the Fed’s target of 2% annual inflation, it represents progress in combating the rising cost of living. Economists believe that expectations are the key to inflation, because they influence the behavior of firms, which will raise prices and workers, who will demand higher wages if they believe prices will continue to rise.

The New York Fed’s one-year measure of expectations hit a record high of 6.8% in June, according to data going back to 2013, amid inflation rising to its highest point in more than 40 years.

Over the longer term, the outlook was little changed, with the three-year forecast flat at 3% and the five-year forecast rising to 2.4%.

Consumers expect gas prices to rise 4.1% and food prices to rise 7.6% over the next year, but both figures represent a decrease of 0.7 percentage points from the previous month.

Although they see prices continuing to rise, consumers expect to spend less.

The one-year forecast for household spending fell a full percentage point to 5.9%, the lowest level since January 2022 and well below the record high of 9% in May 2022. Meanwhile, household income is expected to rise 4.6%. Over the next year, series high.

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The results come amid the Federal Reserve’s move to use it The interest rate increases to curb inflation. In 2022, the central bank raised benchmark interest rates by 4.25 percentage points, and is expected to add a few more increases in the early part of this year before stopping.

One of the primary targets is the still hot job market, which has seen growth 223,000 non-agricultural jobs in December. Fed officials worry that the continued imbalance in labor demand to supply — 1.7 jobs open for every available worker — will continue to push wages and labor costs higher.

Despite the efforts, poll respondents’ optimism about the labor market has grown, with 40.8% expecting the unemployment rate to be higher a year from now, down 1.4 percentage points from November. The unemployment rate was 3.5% in December, its lowest level since late 1969.

Home prices are also expected to grow 1.3%, up 0.3 percentage points from November, according to the survey.