Fewer consumers are expecting inflation in the medium and longer terms, according to the Federal Reserve Bank of New York’s monthly Survey of Consumer Expectations released today. Expectations about price increases for gas and food for the coming year fell sharply, and home price growth expectations and year-ahead spending growth expectations also pulled back from recent highs.
Median one- and three-year-ahead inflation expectations declined sharply in July, to 6.2% and 3.2% from 6.8% and 3.6% in June, respectively. Median five-year-ahead inflation expectations declined to 2.3% from 2.8% in June. The median expected change in home prices one year from now dropped sharply to 3.5% from 4.4%, its third consecutive decrease and its lowest reading since November 2020.
Expectations about year-ahead price changes for gas decreased by 4.2 percentage points to 1.5% and by 2.5 percentage points for food to 6.7%. The decline in food price growth expectations was the largest observed since the beginning of the survey series in June 2013. The median expected growth in household income increased by 0.2 percentage point in July to 3.4%, a series high. Median year-ahead nominal household spending growth expectations fell by 1.5 percentage points to 6.9% in July, well below its series high of 9% in May, but above its trailing 12-month average of 6.4%.
Perceptions about households’ financial situations compared to a year ago improved slightly, with fewer respondents reporting being financially worse off than they were a year ago. Respondents were also more optimistic about their financial situation in the year ahead, with fewer respondents expecting their financial situation to deteriorate a year from now.