In April, consumers became more concerned about price increases in the short and long term. This was mainly because of the high inflation in home prices, fuel, and energy costs, according to a survey by the New York Federal Reserve released on Monday.
Inflation Outlook
The New York Federal Reserve’s monthly Survey of Consumer Expectations showed that outlooks for inflation increased over both one and five-year periods. Respondents are now less confident in the Federal Reserve’s ability to reach its 2% inflation target in the near future.
Over one year, expectations increased to 3.3%, up by 0.3 percentage points from March. This makes it the highest level since November 2023. Looking ahead five years, the expectation increased to 2.8%, up by 0.2 percentage points. However, at the three-year mark, the outlook dropped slightly to 2.8%, down by 0.1 percentage points.
In May, the University of Michigan Survey of Consumers sentiment index decreased to 67.4 from 77.2 in April, below the expected 76. This is a 12.7% decline from last month but shows a 14.2% increase from the same time last year.
Apart from these, all the readings are above the Fed’s 2% goal, showing that inflation has stayed the same this year after decreasing in 2023.
Inflation is expected from many sources, but the main reason lies in the rising housing prices, which are especially concerning for policymakers expecting housing costs to decrease this year.
When Is The Next Rate Cut?
The survey showed that the consumers hoped the median home price would grow by 3.3% over the next year, increasing by 0.3 percentage points from a stable level for seven months. This number is the highest since July 2022 and is majorly influenced by people with a high school degree or less and lower-income groups. It is important to note that these are the areas of concern for Fed officials amid rising inflation since early 2022.
The survey also showed consumers expecting a 9.1% rent increase, up by 0.4 percentage points from the previous month. Even though inflationary pressures are in place right now, the Federal Reserve is still cautious and has maintained its stance on interest rates. Moreover, they have stressed the importance of stronger evidence of inflation returning to the 2% target before introducing rate cuts.
Fed Vice Chair Philip Jefferson said that policymakers are still waiting for more evidence of inflation returning to the 2% target before considering any changes to the policy rate.
Consumers expect medical care costs to increase by 8.7% over the next year, up 0.6 percentage points from the March survey. They also expect food prices to increase by 5.3%, gasoline by 4.8%, and college education expenses to rise by 9%, a 2.5 percentage point increase.
Employment expectations in the survey have shown the consumer to have mixed opinions. While unemployment was expected to rise, the probability of losing one’s job has decreased. However, the outlook for job mobility has decreased, with only 50.9% expecting to find a new job quickly after losing their current one, marking the lowest reading since April 2021.
The survey of the Labor Department’s consumer price index report is scheduled for release on Wednesday. Economists predict a 3.4% increase in the all-items CPI for April compared to the previous year, a slight decrease from March. Core inflation, which excludes food and energy, is expected to be at a 3.6% rate over the past 12 months.
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