People shop at a grocery store in Brooklyn, New York on July 11, 2024.
Spencer Pratt | Getty Images
Consumers became more confident in July that inflation will be less of a problem over the next few years, with their three-year outlook hitting its lowest on record, according to a report released Monday by the New York Federal Reserve.
According to the latest views from our monthly Consumer Expectations Survey, respondents expect inflation to remain high over the next 12 months before declining over the next two to three years.
Indeed, the three-year portion of the survey showed that consumers expect inflation to be just 2.3%, down 0.6 percentage points from June and the lowest in the survey’s history since June 2013.
The results have investors on edge about the state of inflation and whether the Federal Reserve might cut interest rates as soon as next month. Economists say expectations are key to inflation, as consumers and business leaders adjust their behavior if they believe prices and labor costs may continue to rise.
On Wednesday, the Labor Department will release its monthly inflation gauge, the Consumer Price Index, which Dow Jones estimates rose 0.2% in July for an annualized 3% increase — still a full percentage point below the Fed’s 2% target but about one-third the level of two years ago.
The market is fully pricing in the possibility of at least a quarter of a percentage point rate cut in September, and a strong possibility of a one percentage point Fed rate cut by the end of the year.
The medium-term outlook improved, while one- and five-year inflation expectations remained unchanged at 3% and 2.8%, respectively.
But there was some other good news on inflation in the survey.
Respondents now expect gasoline prices to rise 3.5% over the next year, 0.8% lower than in June, and food prices to rise 4.7%, 0.1% lower than a month ago.
Moreover, household spending is expected to grow by 4.9%, 0.2 percentage points lower than in June and the lowest since April 2021, around the time the current inflation surge began.
Conversely, expectations rose for health care costs, college education costs and rent costs. The outlook for college costs jumped 1.9 percentage points to 7.2%, while the rent component, a particular sticking point for Fed officials who have been banking on lower housing costs, is now expected to rise 7.1%, 0.6 percentage points higher than in June.
Employment expectations rose despite the rising unemployment rate: The likelihood of losing one’s job in the next 12 months fell 0.5 percentage points to 14.3 percent, while expectations of voluntary job loss, a measure of workers’ confidence in labor market opportunities, rose 0.2 percentage points to 20.7 percent, the highest level since February 2023.
