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Consumers see inflation slowing considerably next year, New York Fed survey shows

Shoppers carry bags of purchased goods at the King of Prussia Mall on December 11, 2022 in King of Prussia, Pennsylvania.

Mark Makela | Getty Images

Consumers became more optimistic about inflation in November, amid expectations that price increases for both food and energy would ease in the coming year, according to a New York Federal Reserve survey released Monday.

The central bank̵[ads1]7;s Survey of Consumer Expectations indicated that respondents see one-year inflation at 5.2%, down 0.7 percentage points from the October reading.

That’s the lowest level for that measure since August 2021 – the first days of the inflation pick-up that has gripped the economy and pushed the Fed into a series of aggressive rate hikes that are likely to continue this week. The latest annual inflation measured by the consumer price index was 7.7% in October.

Adding to the brighter near-term outlook, the estimate for the inflation rate three years from now fell to 3%, down 0.1 percentage point from last month. A relatively new data series reflecting the five-year outlook fell by the same level, to 2.3%.

Consumers see inflation slowing considerably next year, New York Fed survey shows

The survey comes as Fed officials have indicated the likelihood of a 0.5 percentage point rate hike this week when policymakers wrap up their two-day meeting on Wednesday. If it happens, it will be the seventh rate hike of the year, taking the Fed’s short-term benchmark rate to a target between 4.25%-5%, the highest in 15 years.

However, inflation news has improved at least modestly in recent days, a trend that will be reflected in post-meeting communications from the rate-setting Federal Market Committee and Chairman Jerome Powell.

Respondents to the New York Fed survey said they see gas prices rising 4.7% and food up 8.3% in the year ahead. While these increases are still not consistent with an economy where inflation is running at the Fed’s 2% target rate, they are respective decreases of 0.6 percentage point and 0.8 percentage point from last month.

The survey also indicated that wages are expected to grow by 2.8% for the 12-month period, a monthly decrease of 0.2 percentage points and tied for the lowest level also going back to August 2021.

However, household income is projected to grow by 4.5%, with a monthly increase of 0.2 percentage points taking the outlook to its highest level ever in a data series going back to June 2013.

The unemployment outlook actually brightened, with 42.2% of respondents saying they think unemployment will be higher in a year. The 0.7 percentage point drop came even as Fed officials have said they expect their efforts to slow the economy to hurt the labor market, which currently has an unemployment rate of 3.7%.

Workers’ expectations of being able to find a job if they lose their current position rose to 58.2%, the highest level since February 2020, just before the Covid pandemic hit.

The next important inflation reading comes on Tuesday with the Ministry of Labour’s consumer price index for November. Economists surveyed by Dow Jones expect the report to show a monthly increase of 0.2% and an annual increase of 7.3%. Excluding food and energy, the respective core CPI forecasts are 0.4% and 6.1%.

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