Gas prices are displayed at an Exxon gas station in Houston, Texas on July 29, 2022.
Brandon Bell | Getty Images
Consumer inflation prospects deteriorated significantly in July as gas prices fell sharply and confidence grew that rapid increases in food and housing would continue to slow going forward.
The New York Federal Reserve’s monthly survey of consumer expectations showed that respondents expect inflation to be 6.2% next year and 3.2% over the next three years.
While these numbers are still very high by historical standards, they mark a big drop from the June survey’s 6.8% and 3.6% results respectively.
Through June, food prices rose 10.4% last year, according to the Bureau of Labor Statistics. They’re still expected to rise 6.7% over the next 12 months, but that’s down 2.5 percentage points from the June survey, the largest drop in a data series stretching back to June 2013.
Likewise, respondents see gas prices, which rose 60% last year, rising just 1.5% next year, down 4.2 percentage points from June, the second-largest monthly decline in the survey’s history .
Finally, home prices are expected to rise 3.5% from 4.4% in June, the lowest projected increase since November 2020.
Five-year inflation expectations also fell by 0.5 percentage points to 2.3%.
The findings come as the Fed has aggressively hiked interest rates in a bid to lower inflation, which is at its highest level in more than 40 years. The central bank raised interest rates four times in 2022, totaling 2.25 percentage points, and market prices are pointing to a third straight hike of 0.75 percentage points in September, according to data from CME Group.
However, the July Fed results from the New York Fed could give policymakers reason to backtrack, if not in September then later in the year when the inflation data comes in handy. The Fed is targeting 2% inflation over the long term, so the survey forecasts remain well above the central bank’s comfort level.
Over the weekend, Fed Governor Michelle Bowman said she doesn’t expect inflation to ease anytime soon and sees the need to push rates higher. San Francisco Fed Chair Mary Daly echoed those views, saying the hikes are “far from complete.”
Those comments came after the BLS on Friday reported much higher figures for wage growth – 528k – and wages, with average hourly earnings rising 5.2%.
The New York Fed’s survey also showed that overall household spending growth is expected to slow to 6.9% next year. That’s a comparatively high figure over the longer term, but well below May’s record 9% reading. The monthly decline of 1.5 percentage points is the largest in the survey’s history.
Consumers also got slightly more bullish on stock prices in a month that saw the S&P 500 surge 9%, with 34.3% now expecting higher prices over the next 12 months.