Consumers expect short-term inflation, bearish on home prices and spending

More U.S. consumers believe inflation is on the horizon in the short term but are more optimistic about the economy in the medium and longer terms, according to the Federal Reserve Bank of New York’s monthly Survey of Consumer Expectations released today. According to the report, consumers’ belief that home prices will grow dipped sharply along with expectations for spending growth. Credit access perceptions and expectations continued to deteriorate, as did expectations for current and future financial situations.

Median one-year-ahead inflation expectations increased to 6.8% from 6.6% in May, a new series high. In contrast, median three-year-ahead inflation expectations decreased to 3.6% from 3.9%. The increase in short-term expectations was driven by respondents over age 60 and respondents with at least some college education. Median five-year ahead inflation expectations declined to 2.8% from 2.9%. Expected change in home prices one year from now dropped sharply to 4.4% from 5.8%, which is the lowest reading of the series since February 2021.

Expected growth in household income increased by 0.2 percentage point in June to 3.2%. Year-ahead household spending growth expectations retreated from its series high in May, declining by 0.6 percentage point to 8.4% but remaining well above its 2021 average of 5%. The decline was the first this year and was driven by respondents over age 40, those without any college education, and those with annual household incomes under $50k. Perceptions about households’ current financial situations compared to a year ago deteriorated in June, with more respondents reporting being financially worse off. Respondents were also more pessimistic about their financial situation in the year ahead, with fewer respondents expecting their financial situation to improve a year from now.