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 U

Short- and medium-term inflation expectations among American consumers rose again in June. While expectations for gasoline prices dropped to their lowest level since mid-2022 due to declining energy prices, concerns over rising medical costs and rent have kept household inflation anxiety at an elevated level. 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 the 7th (local time), the one-year ahead inflation expectation rose by 0.2 percentage points to 3.7% from 3.5% the previous month. This marks the highest level since September 2023.

Three-year ahead inflation expectations also increased by 0.2 percentage points to 3.3%, up from 3.1% in the previous month. This is the highest level since June 2022. In contrast, five-year ahead 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.

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

On the other hand, concerns over medical costs and rent intensified. Expectations for a rise in medical expenses over the next year climbed by 0.5 percentage points to 9.4%, and expectations for rent increases rose by 0.9 percentage points to 8.3%. While falling energy prices can help lower headline inflation, the ongoing burden of living costs such as housing and medical care continues to fuel inflation anxiety among consumers.

Earlier, John Williams, President of the New York Fed, stated in an interview with Fox Business that "the recent drop in energy prices is making me feel a bit more positive about the short-term inflation outlook." Regarding the current stance of monetary policy, he also commented that "the Fed is well positioned to achieve its mandate."

The latest survey results demonstrate that even if inflationary pressure from energy prices eases, consumer inflation expectations cannot yet be considered stable. Although the Fed has kept its benchmark interest rate unchanged this year, economic projections released last month showed that nine policymakers believe at least one rate hike will be necessary before the end of the year.

Consumers' assessment of the labor market improved. The average probability that the U.S. unemployment rate will rise in the next year decreased by 1.5 percentage points to 41.7% from the previous month. The average probability of losing a job within the next 12 months also dropped by 1.0 percentage point to 14.1%. However, the probability of finding a new job after losing one increased by 1.2 percentage points to 44.9%.

In summary, both expectations for a higher unemployment rate and the likelihood of job loss declined, while the probability of re-employment after job loss increased. However, the likelihood of voluntary resignation decreased to 17.3%, the lowest level since July 2023.

Household financial assessments also showed improvement overall. Expectations for household income growth over the next year rose by 0.2 percentage points to 3.0%, while expectations for increased spending remained unchanged at 5.0%. The probability of being unable to make minimum debt payments within the next three months fell by 1.8 percentage points to 10.8%, reaching the lowest level since April 2023.

Optimism about the stock market strengthened as well. The average probability that U.S. stock prices will be higher a year from now increased by 2.9 percentage points to 40.9%, the highest since April 2021. More respondents indicated that their household financial situation has improved compared to a year ago, and outlook for financial conditions a year ahead also improved.

These survey results are likely to further complicate the Fed's policy calculations. President Williams has repeatedly emphasized the importance of "inflation expectations" at public events during the first half of this year. In this survey, falling energy prices and improved employment and household finance expectations are positive signs for the economy and short-term inflation prospects. However, with one-year and three-year inflation expectations both rising, it is unlikely the Fed will be able to confidently signal a clear path for interest rates based on certainty about easing inflation.

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