US Inflation Expectations Rise for Both 1-Year and 3-Year Horizons... Driven by Higher Medical and Rent Costs

Inflation Expectations Affect Prices and Wages

One- and Three-Year Inflation Expectations Reach Highest Levels Since 2023 and 2022

Short- and Medium-Term Inflation Anxiety Intensifies

However, Five-Year Inflation Expectations Remain Unchanged

Expectations for Gasoline Price Increases Drop by 3.5 Percentage Points

Positive for Lower Headline Inflation

Short- and medium-term consumer inflation expectations in the United States rose again in June. Although energy prices fell, resulting in gasoline price expectations reaching their lowest level since mid-2022, household concerns over inflation remained elevated due to growing worries about rising medical costs and rent. However, five-year inflation expectations remained unchanged.

According to the June Survey of Consumer Expectations released by the Federal Reserve Bank of New York on July 7 (local time), one-year-ahead inflation expectations increased by 0.2 percentage points to 3.7% from the previous month’s 3.5%. This is the highest level since September 2023.

Three-year inflation expectations also rose by 0.2 percentage points to 3.3% from 3.1% in the previous month, marking the highest figure since June 2022. In contrast, five-year inflation expectations remained steady at 3.0%.

American consumers currently believe that inflation will not easily drop to around 2% within the next 1 to 3 years. However, long-term inflation expectations over five years remain unchanged. This suggests that concerns about inflation are focused on the medium term due to the burden of living expenses such as medical costs and rent. New York, USA — Special Correspondent Yoonju Hwang.

The outlook varied by category. Expectations for gasoline price increases dropped sharply by 3.5 percentage points to 1.5%, the lowest since August 2022. This is attributed to the recent decline in energy prices following the signing of a ceasefire memorandum of understanding (MOU) between the United States and Iran. Expectations for food price increases also fell by 0.8 percentage points to 5.0%, while expectations for higher college tuition dropped by 2.3 percentage points to 5.7%.

On the other hand, concerns over medical costs and rent rose. Expectations for medical cost increases over the next year climbed by 0.5 percentage points to 9.4%, and rent increase expectations rose by 0.9 percentage points to 8.3%. While falling energy prices may help lower headline inflation, the burden of living expenses, such as housing and medical costs, continues to fuel consumer anxiety about inflation.

Earlier, President Williams stated in a Fox Business interview that “the drop in energy prices makes me feel somewhat more positive about the short-term inflation outlook.” He also commented on the current monetary policy stance, saying, “We are well positioned to achieve the Fed’s mandate.”

Nevertheless, the survey results indicate that even as energy-driven inflationary pressures ease, consumer inflation expectations have not yet stabilized. While the Fed has kept the benchmark interest rate unchanged so far this year, in last month’s economic outlook, nine policymakers indicated that at least one rate hike would be necessary within the year.

Consumers’ assessment of the labor market improved. The average probability that the U.S. unemployment rate will rise in the next year fell by 1.5 percentage points to 41.7%. The average probability that respondents will lose their jobs within the next 12 months also decreased by 1.0 percentage point to 14.1%. Conversely, the probability of finding a new job if laid off rose 1.2 percentage points to 44.9%.

However, the probability of voluntarily quitting a job dropped by 3.5 percentage points to 17.3%, the lowest since July 2023. Although perceptions of a more stable labor market have improved, this suggests that workers’ confidence to actively move for better jobs has weakened.

Overall, assessments of household finances also improved. Expectations for household income growth over the next year rose by 0.2 percentage points to 3.0%, while expectations for spending growth remained unchanged at 5.0%. The probability of failing to make minimum debt payments within the next three months fell by 1.8 percentage points to 10.8%, the lowest since April 2023.

Optimism about the stock market strengthened as well. The average probability that U.S. stock prices will be higher one year from now rose by 2.9 percentage points to 40.9%, the highest level since April 2021. The proportion of respondents who said their current household financial situation is better than a year ago also increased, and outlooks for financial conditions a year ahead improved.

These survey results are likely to complicate the Fed’s policy calculations even further. President Williams has emphasized the importance of “inflation expectations” at public events in the first half of this year. The improvements in energy prices, employment, and household finance outlooks are positive signals for the economy and near-term inflation. However, with both one-year and three-year inflation expectations rising simultaneously, it will be difficult for the Fed to confidently signal a clear path for interest rates based on expectations of cooling inflation.

This content was produced with the assistance of AI translation services.