Consumers increased their expectations for short-term and long-term price increases in April due to higher inflation in fuel and energy as well as home prices, according to a New York Fed survey released Monday.
The New York central bank reported in its monthly consumer expectations survey that expectations rose for the one-year and five-year time horizons, as respondents expressed little confidence that the Fed would reach its 2% inflation target anytime soon.
On a one-year basis, the forecast rose to 3.3%, up 0.3 percentage points from March and the highest level since November 2023. On a five-year basis, expectations rose 0.2 percentage points to 2.8%. However, his three-year outlook dropped to his 2.8%, a drop of 0.1 points.
The results echo a University of Michigan sentiment survey released Friday, which showed May’s one-year outlook at 3.5%, also up 0.3 points, and the five-year outlook, up slightly to 3.1%.
Both measures are well above the Fed’s 2% target, reflecting the robust nature of this year’s inflation after a strongly disinflationary trend in 2023.
Inflationary pressures are expected to arise from a variety of factors. But the expected rise in home prices is especially troubling for policymakers, who had expected shelter costs to ease this year.
Survey respondents indicated they expected median house price growth to be 3.3% over the next 12 months, an increase of 0.3 percentage points from a stable seven-month period. It was also the highest reading since July 2022, boosted by numbers for those with a high school diploma or less, the low-income group that Fed officials were particularly concerned about during the period of surging inflation that began in early 2022.
With housing costs expected to rise, respondents expect rents to rise by 9.1%, or 0.4 percentage points month-on-month.
Fed officials again held the line on interest rates in recent meetings, saying they needed to see more convincing evidence that inflation was returning to its 2% target before cutting rates. .
Fed Vice Chairman Philip Jefferson said Monday that policymakers “continue to look for further evidence that inflation will return to our 2% target, and until we receive that, we will keep interest rates in a restrictive area.” I think that is appropriate.”
Consumers expect medical costs to increase by 8.7% over the next year, an increase of 0.6 percentage points from the March survey. We expect food prices to rise by 5.3% (up 0.2 percentage points from the previous month), gasoline prices by 4.8% (up 0.3 percentage points), and university education prices to rise by 9% and 2.5 percentage points.
Employment expectations were mixed in the survey, with perceptions of the unemployment rate declining but the unemployment rate seen as rising. However, the outlook for liquidity has declined, with 50.9% expecting to find work soon after losing their current job, the lowest figure since April 2021.
The survey came two days before the Labor Department’s closely watched report on the consumer price index, which is scheduled to be released Wednesday. Economists surveyed by Dow Jones expect the all-item CPI to rise 3.4% in April from a year ago, down 0.1 percentage point from March. Core inflation, which excludes food and energy, is expected to be 3.6% over 12 months.
