Consumer expectations for price increases rose in April, driven by higher inflation in home prices, fuel, and energy, according to a New York Federal Reserve survey. Respondents expressed little confidence that the Fed would reach its 2% inflation goal anytime soon. Expectations for price increases in the one-year horizon increased to 3.3%, the highest since November 2023, while the five-year outlook rose to 2.8%. However, at the three-year horizon, the outlook fell to 2.8%.
These findings align with the University of Michigan sentiment survey released in May, which also showed an increase in the one-year outlook to 3.5% and the five-year outlook to 3.1%. Inflation pressures are expected to arise from various sources, with higher housing prices being particularly concerning for policymakers. The survey revealed that respondents expect median home price growth of 3.3% over the next year, the highest since July 2022. Rent expectations also increased to 9.1%.
Fed officials have maintained their stance on rates, indicating that they need more evidence of inflation returning to the 2% target before considering rate cuts. Consumers in the survey anticipate price increases in medical care, food, gasoline, and college education in the coming year. Expectations for employment were mixed, with an increase in perceived unemployment but a decrease in the probability of losing one’s job. The mobility outlook decreased, with the lowest percentage of respondents expecting to find a job quickly after losing their current job.
The survey was released ahead of the Labor Department’s report on the consumer price index, expected to show a 3.4% increase in all-items CPI for April from the previous year. Core inflation, excluding food and energy, is projected to run at a 3.6% 12-month rate. The results highlight the persistent nature of inflation this year, following a disinflationary trend in 2023. Policymakers are closely monitoring inflation expectations and economic indicators to determine appropriate policy measures to address rising prices and inflationary pressures in various sectors of the economy.
