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Consumers See Inflation Drop Significantly Next Year, New York Fed Survey Shows

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

Mark Makela | Getty Images

Consumers grew more optimistic about inflation in November as food and energy price increases were expected to be less severe in the year ahead, a survey shows. from the New York Federal Reserve released on Monday.

The central bank’s consumer expectations survey said respondents see year-on-year inflation at a pace of 5.2%, down 0.7 percentage points from the October reading. .

This is the lowest level for this reading since August 2021 – the early days of the inflation spurt that gripped the economy and pushed the Fed into a series of aggressive interest rate hikes that are likely to continue. this week. The most recent annual inflation rate measured by the consumer price index was 7.7% in October.

In addition to the improved near-term outlook, the projection for the inflation rate three years from now fell slightly to 3%, down 0.1 percentage point from the previous month. A relatively new data series reflecting the five-year outlook fell by the same level, to 2.3%.

The survey comes as Fed officials indicated the likelihood of an interest rate hike of 0.5 percentage points this week when policymakers wrap up their two-day meeting on Wednesday. If that happens, it would be the seventh rate hike of the year, taking the Fed’s benchmark short-term borrowing rate to a target range of between 4.25% and 5%, the most raised in 15 years.

However, inflation news has improved at least slightly in recent days, a trend reportedly reflected in post-meeting communications from the Federal Open Market Committee responsible for setting rates and Chairman Jerome Powell.

Respondents to the New York Fed survey said they see gasoline prices rising 4.7% and food prices rising 8.3% over the coming year. While these hikes are still not consistent with an economy where inflation is at the Fed’s 2% target rate, they are cuts of 0.6 percentage points and 0.8 percentage points, respectively. compared to the previous month.

The survey also said wages are expected to rise by 2.8% for the 12-month period, a monthly decline of 0.2 percentage points and tied for the lowest level also dating back to August 2021.

However, household income is expected to rise by 4.5%, with the monthly increase of 0.2 percentage points taking the outlook to its highest level on record in a series of data dating back to June 2013.

The unemployment outlook has actually brightened, with 42.2% of respondents saying they thought the jobless rate would be higher in a year. The 0.7 percentage point decline came even though Fed officials said they expected their efforts to slow the economy to hurt the labor market, which is currently showing an unemployment rate of 3.7%.

Additionally, workers’ expectations of being able to find a job if they lose their current position have risen to 58.2%, the highest level since February 2020, just before the Covid pandemic hit with full force.

The next key inflation reading comes Tuesday with the Labor Department’s consumer price index for November. Economists polled 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 forecasts for core CPI are 0.4% and 6.1%.

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