Inflation expectations have shown a decline, as revealed by the Federal Reserve Bank of New York's July 2023 Survey of Consumer Expectations. This shift signals potential changes in consumer sentiment and economic outlook, according to a press release.
Median inflation expectations decreased at short-, medium- and longer-term horizons, according to the report. At the one-year-ahead horizon, inflation expectations fell from 3.8% to 3.5%, and at both the three-year and five-year-ahead horizons, expectations declined from 3.0% to 2.9%. Notably, this represents the lowest reading for the one-year-ahead horizon since April 2021.
The survey highlighted a broad-based decline in inflation expectations across different demographic groups, suggesting a widespread recalibration of inflation sentiment. Moreover, the report indicated a decrease in the survey's measure of disagreement among respondents, indicating a convergence of expectations.
While inflation uncertainty slightly increased at the three- and five-year-ahead horizons, it decreased at the one-year-ahead horizon. This shift in uncertainty could reflect evolving economic dynamics and potentially impact consumer behavior.
The survey also delved into other aspects of consumer expectations. Median home price growth expectations saw a marginal decrease from 2.9% in June to 2.8% in July. Furthermore, year-ahead expected price changes for essential commodities, including gas, food, medical care, college education costs and rent, all experienced declines. These declines mark the lowest readings for food, medical care and rent expectations since September 2020, November 2020 and January 2021, respectively.
The labor market expectations revealed in the report showed signs of strengthening. Median one-year-ahead expected earnings growth edged down slightly by 0.2 percentage points to 2.8%. In contrast, mean unemployment expectations decreased by 1.0 percentage point to 36.7%, reaching the lowest level since April 2022. This suggests that respondents are more optimistic about the job market.
Household finance perceptions exhibited improvements as well. While median expected growth in household income remained unchanged at 3.2%, household spending growth expectations increased from 5.2% in June to 5.4% in July. This indicates a cautiously positive outlook on future spending habits.