Consumers in April raised their expectations for price increases in the near and longer term, influenced by higher inflation in home prices, fuel, and energy. The New York Federal Reserve reported in its monthly Survey of Consumer Expectations that the outlook increased across the one- and five-year horizons. Expectations for inflation in the one-year outlook rose to 3.3%, the highest since November 2023, while the five-year outlook increased to 2.8%. However, the three-year outlook fell to 2.8%. The results are reflective of the stubborn nature of inflation this year compared to a disinflationary trend in 2023, with expectations exceeding the Fed’s 2% goal.
Various sources are expected to contribute to inflation pressures, with one notable concern being the expected increase in housing prices. Respondents to the survey indicated they expect median home price growth of 3.3% over the next year, showing a notable increase. Respondents also anticipate rises in rents, medical care costs, food prices, gasoline, and college education. Fed officials, at their recent meeting, maintained rates unchanged and expressed the need for more evidence of inflation returning to the 2% target before making changes. Overall, the survey points to inflationary pressures in the US economy due to rising home prices and other expenses.
Employment expectations in the survey were mixed, with respondents expecting unemployment to rise while the probability of losing one’s job declined. However, there was a decrease in the likelihood of finding a job quickly after losing one’s current job. The survey comes ahead of the forthcoming Labor Department report on the consumer price index, which is expected to show a 3.4% increase in all-items CPI for April compared to the previous year, with core inflation projected to run at a 3.6% 12-month rate. These figures indicate the ongoing inflationary pressures in the economy and the challenges faced by policymakers in managing rising prices.
The survey results are consistent with the University of Michigan sentiment survey released earlier, showing an increase in inflation expectations for both the one-year and five-year horizons. Respondents expressed skepticism that the Fed would achieve its 2% inflation goal in the near future. In particular, the expectations for rising housing prices indicate a potential challenge for policymakers, as they had expected shelter costs to ease. The survey also highlights concerns about increases in rental prices, medical care costs, food prices, gasoline, and college education expenses, further contributing to inflation pressures in the economy.
Fed Vice Chair Philip Jefferson reiterated the need for substantial evidence of inflation moving back towards the 2% target before considering rate adjustments. The survey findings point to persistent inflationary pressures in the US economy, with respondents anticipating higher costs across various sectors. The upcoming Labor Department report on the consumer price index is expected to provide further insight into the current inflationary environment. Overall, the survey highlights the challenges faced by policymakers in managing inflation and its implications for consumers in the near and longer term.
