Federal Reserve Bank of New York survey finds stability in January inflation expectations

The future path for inflation as viewed by American consumers was little changed at the start of the year amid declines in the expected rises for a number of key spending areas.

The Federal Reserve Bank of New York said Monday in its January Survey of Consumer Expectations that inflation a year and five years from now were unchanged at readings of 3 per cent and 2.5 per cent, respectively, while the projected rise in inflation three years from now dropped to 2.4 per cent, the lowest since March 2020, from December’s 2.6 per cent.

The report found a broad retreat in where the public expects future price rises to go for a range of key areas. The year– ahead expected rise for gasoline hit its lowest reading since December 2022, while the year-ahead increase in food was at its lowest point since March 2020, the onset of the coronavirus pandemic, while the expected rise in rent hit its lowest reading since December 2020.

The New York Fed data on inflation expectations comes after the Fed’s most recent policy meeting, which held short-term interest rates steady while opening the door to cutting them at some point later this year due to falling inflation pressures. Fed officials’ confidence that they are on a path back to 2 per cent inflation is in part buttressed by a trend of retreating inflation expectations readings, which officials believe have a strong influence on what will actually happen with price pressures.

Speaking at his news conference after the last Federal Open Market Committee meeting on Jan. 31, Fed Chair Jerome Powell said longer-run inflation expectations are “well anchored,” while noting “inflation expectations are very close to where they were before the inflation emergency of the last three years.”

In the report, the bank found that respondents in January continued to expect home prices will rise by 3 per cent, the same reading seen over the last four months. Respondents have “mixed” views on the state of the job market, and forecast one-year ahead expected earnings growth of 2.8 per cent, above December’s 2.5 per cent reading.

Survey respondents also said it was getting easier to access credit and that overall perceptions of their personal financial situations improved in January.

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