Consumers Now Expecting Lower Inflation

Tue, 09 January 2024  |  economy 

The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the December 2023 Survey of Consumer Expectations, which shows that inflation expectations declined at the short-, medium- and longer-term horizons. Notably, inflation expectations at the short-term horizon reached the lowest level recorded since January 2021. Earnings growth and spending growth expectations also decreased slightly to their lowest recorded levels since 2021, while expectations about credit access and households’ financial situation turned less pessimistic.

The main findings from the December 2023 Survey are:

Inflation

• Median inflation expectations declined at all horizons, falling to 3.0% from 3.4% at the one-year ahead horizon, to 2.6% from 3.0% at the three-year ahead horizon, and to 2.5% from 2.7% at the five-year ahead horizon. Median inflation expectations at the one-year ahead horizon reached the lowest level recorded since January 2021. 
• Median home price growth expectations remained unchanged at 3.0%, remaining well above the series 12-month trailing average of 2.4%.
• Median year-ahead expected price changes increased by 0.5 percentage point for the cost of a college education to 6.3%, decreased by 0.3 percentage point for food to 5.0%, decreased by 0.7 percentage point for rent to 7.3%, and remained flat for gas at 4.5% and the cost of medical care at 9.1%.

Labor Market

• Median one-year-ahead expected earnings growth decreased by 0.2 percentage point to 2.5%, the lowest level since April 2021. The decline was driven by respondents with at most a high school diploma.
• Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 1.4 percentage points to 37.0% , remaining below the series 12-month trailing average of 39.5%.
• The mean perceived probability of losing one’s job in the next 12 months decreased slightly by 0.2 percentage points to 13.4%, remaining above the series 12-month trailing average of 12.3%. The mean probability of leaving one’s job voluntarily in the next 12 months increased by 0.8 percentage point to 20.4%.

Household Finance

• Median expected growth in household income decreased by 0.1 percentage point to 3.0%, remaining above the February 2020 pre-pandemic level of 2.7% . The series has been moving within a narrow range of 2.9% to 3.3% since January 2023.
• Median household spending growth expectations declined by 0.2 percentage point to 5.0%, reaching the lowest level recorded since September 2021. Still, the series remains well above its February 2020 pre-pandemic level of 3.1%.     
• Perceptions of credit access compared to a year ago were largely unchanged. Expectations about credit access a year from now instead improved with a larger share of respondents expecting looser credit conditions and a smaller share of respondents expecting tighter credit conditions a year from now.
• The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months decreased by 3.6 percentage points to 25.9%, its lowest level since November 2021.
• Perceptions about households’ current financial situations improved with fewer respondents reporting being worse off than a year ago. Year-ahead expectations also improved with a smaller share of respondents expecting to be worse off and a larger share of respondents expecting to be better off a year from now.
• The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 0.2 percentage point to 36.7%.