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Key Takeaways
- Consumer inflation expectations dropped to 3% in June, falling for a second straight month, a New York Fed survey showed.
- Consumers also said they expect housing costs to rise by 3% over the next year, less than last month’s result.
- People said they felt better about their year-ahead earnings, but more of them worried about the possibility of losing their job.
Consumers continue to feel better about inflation, as the latest New York Fed survey showed that the public sees price pressures easing over the next year.
Consumers believed prices will rise by 3% over the next year, ticking lower for a second straight month after moving higher in April, according to the Federal Reserve Bank of New York's June Survey of Consumer Expectations. The public also lowered its five-year inflation expectations to 2.8%. Three-year inflation expectations inched higher, to 2.9%.
The drop comes as other recent reports show consumers are anticipating inflation to slow. The closely watched Michigan Consumer Sentiment Survey also showed a decline in year-ahead inflation expectations in June, as did a similar survey from the Conference Board.
Fed Closely Watching Inflation Expectations
In its fight against increasingly high prices, the Federal Reserve has set interest rates at decades-high levels as it seeks to bring inflation down to its target of a 2% average annual increase. While the most recent Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, showed inflation cooled to 2.6% in May, it’s still above target. Central bankers have said they want to see more evidence that price pressures are easing before moving to cut interest rates.
Consumer surveys can be part of that evidence and are closely watched by Fed officials, as these expectations can be self-fulfilling if both price-setters and wage payers believe that prices will continue to rise. Following the June meeting of the Federal Reserve, Chairman Jerome Powell said that consumers have so far kept those expectations in check.
“Longer-term inflation expectations appear to remain well-anchored, as reflected in a broad range of surveys of households and businesses and forecasters, as well as measures from financial markets,” Powell said.
Consumers Positive on Housing Prices, Wages
The public was more optimistic in June that housing prices would ease, as the New York Fed survey showed home-price increase expectations dropping to 3%, a decline of 0.3 percentage point from the prior month. High housing prices, along with limited supply and elevated mortgage rates, have made the housing market increasingly unaffordable.
People also felt better about their earning potential in June, as the 3% expected year-ahead wage growth was the highest since September. However, more respondents also perceived the possibility that they could lose their jobs within the next 12 months.