Frederic J. Brown | AFP | Getty Images Lower gas prices are adding to optimism that inflation is on the decline, according to a survey on Monday by the Federal Reserve Bank of New York. Respondents to the central bank’s August Survey of Consumer Expectations said they expect the annual rate of inflation to be 5.7% a year from now. This is down from 6.2% in July and the lowest level since October 2021. Three-year inflation expectations fell to 2.8% in August from 3.2% the previous month. This was the lowest level for this measure since November 2020. The downbeat outlook came amid a drop in gasoline prices from more than $5 a gallon earlier in the summer, a nominal record high. The current national average is about $3.71 a gallon, still well above the price from a year ago, but down about 26 cents from the same point in August, according to AAA. Along those lines, consumers now expect natural gas prices to be little changed a year from now, according to the Fed survey. Food prices are expected to continue rising, but the expected 5.8% year-on-year increase is 0.8 percentage points lower than in July. Rents are forecast to rise 9.6%, but that’s down 0.3 percentage points from the July survey. Those numbers come as the Fed uses a series of aggressive rate hikes to combat inflation still nearing 40-year highs. The central bank is widely expected to approve a third straight hike of 0.75 percentage points when it meets again next week.
The cost of living is rising
While consumers expect inflationary pressures to ease somewhat, they still believe the cost of living will escalate. Median expectations for household spending next year rose 1 percentage point to 7.8% in August, an increase in the outlook driven largely by those with a high school diploma or less and a group largely made up of people with lower incomes. In addition, respondents said that credit is more difficult so far. Those who said it’s harder now to get credit rose to a record high, with 57.8 percent saying it’s either harder or much harder, the New York Fed said. Also, those who expect to miss a minimum debt payment in the next three months rose 12.2%, a gain of 1.4 percentage points that was the highest reading since May 2020. The Bureau of Labor Statistics on Tuesday will release August’s consumer price index reading. Economists polled by Dow Jones expect the CPI to have risen 8% from a year ago, though they see a 0.1% drop from July. Excluding food and energy, the core CPI is forecast to rise 6% year-on-year and 0.3% month-on-month.
