Consumers think inflation still has to boil over before it cools, according to the Federal Reserve Bank of New York’s latest read on people’s economic expectations.
Consumers expect inflation rates to hit a median of 6.8%, a new record high, over the next year, according to the New York Fed’s ongoing Survey of Consumer Expectations, released Monday. The expected one-year inflation rate of 6.8% was up from 6.6%, the previous record set in May and March.
Nevertheless, survey participants seem to think the fever of four-decade-high inflation is breaking. In the three years ahead, consumers said they expect inflation to come to 3.6%, down from the 3.9% rate they were previously thinking could be in store.
Even more immediately, consumers think the housing market will cool somewhat. Though survey participants think home prices are still going to be rising, they think the anticipated growth will not be as sharp, they said.
Consumers said they expected home prices to increase an estimated 4.4% in the coming year, survey participants said. That’s down from the 5.8% annual home price increase they predicted in the last survey, and researchers said it’s the lowest expected rate on the question since February 2021. Last week, average rates on the 30-year mortgage slipped to 5.3%, amid worries of an economic slowdown.
The New York Fed survey comes days ahead of the Bureau of Labor Statistics’ Wednesday release of June inflation data. In May, inflation rates ran hotter than expected, coming in at 8.6%.
While investors, analysts and policymakers wait for the latest data, there are some signs of cooling prices on consumer goods. The prices on used cars appear to be normalizing, Goldman Sachs
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researchers said last week. But they don’t see the same price corrections playing out for housing prices, they added.
Here’s another glimmer of price relief: On Monday, average gas prices were $4.67 per gallon, according to AAA. That was down from $4.80 a week ago and down from the $5.01 per gallon record set in mid-June.
The ongoing price dip — even in the midst of the busy summer travel season — is related to a combination of factors including more refining operation, lower crude oil prices and some weakening demand, observers have said. The question is how long prices can keep going lower, they add.
People may be hoping for cooler prices in the future, but the Consumer Expectations survey shows they are personally feeling the heat now.
In the ongoing effort to tame inflation, the Fed is poised to keep rising a key interest rate that informs the calculation of other rates. As interest rates rise, more survey participants said it’s become harder to access credit compared to a year ago. More people said it’s going to be even harder to tap credit in the year ahead.
The survey participants were increasingly worried about their finances compared to a year ago and the chance of missing a minimum debt payment in the coming three months edged up. The average chance of missing a payment increased by 0.2 percentage points to 11.3%, a number comparable to pre-pandemic levels.
Consumer sentiment reached an all-time low last month, according to one long-running gauge.
Financial cracks in U.S. households are showing up in other surveys too. A recent Monmouth University poll found more than four in 10 people (42%) said they were struggling to stay in their current financial situation. That’s the largest share of respondents who said yes to that question in the five years the pollsters have been asking it, Monmouth researchers said.
