Inflation outlook rises, fueled by expected increases in housing costs, New York Fed survey shows

In April, consumers raised their expectations for short- and long-term price increases, fueled by higher inflation in house prices as well as fuel and energy, according to a survey of the Federal Reserve of New York published Monday.

The New York District of the central bank reported in its monthly survey of consumer expectations that the outlook was improving over the one- and five-year horizons, with respondents expressing little confidence that the Fed would soon meet its target. inflation of 2%.

On an annual basis, expectations increased to 3.3%, up 0.3 percentage points from March and the highest since November 2023. For the five-year outlook, expectations increased to 2.8%. , up 0.2 percentage points. However, over the three-year horizon, the outlook fell to 2.8%, down 0.1 percentage points.

The results reflect the University of Michigan sentiment survey released Friday, which showed the one-year outlook for May at 3.5%, also up 0.3 percentage points, while the five-year outlook increased to 3.1%.

All numbers are well above the Fed’s 2% target and reflect the stubborn nature of inflation this year after a substantial disinflationary trend in 2023.

Inflationary pressures are expected to come from a wide variety of sources. However, the expected increases in house prices are of particular concern to policymakers who expected housing costs to fall this year.

Survey respondents said they expected median house price growth of 3.3% over the next year, up 0.3 percentage points from a level that remained stable for seven months. It’s also the highest figure since July 2022 and driven by those with a high school diploma or less, a low-income cohort that is of particular concern to Fed officials during a period of surging inflation which took off at the start of 2022.

Alongside the expected rise in real estate costs, respondents expect rents to rise by 9.1%, an increase of 0.4 percentage points from the previous month.

At their latest meeting, Fed officials again held the line on rates and said they needed more convincing evidence that inflation was returning to the 2% target before cutting them.

Policymakers “continue to look for additional evidence that inflation will return to our 2% target, and in the meantime, I think it is appropriate to keep the policy rate in restrictive territory,” the vice president said Monday. of the Fed, Philip Jefferson.

Consumers expect medical care to rise 8.7% over the next year, up 0.6 percentage points from the March survey. They expect food prices to increase by 5.3% (up 0.2 percentage points from a month ago), gasoline prices by 4.8% (up increase of 0.3 percentage points); and college education will increase by 9%, an increase of 2.5 percentage points.

Job expectations in the survey were mixed, with unemployment rising even as the perceived likelihood of losing one’s job fell. However, mobility prospects have diminished, with 50.9% of respondents expecting to find a job quickly after losing their current job, the lowest figure since April 2021.

The survey comes two days before the Labor Department’s closely watched report on the consumer price index, which is due to be released Wednesday. Economists surveyed by Dow Jones expect the all-items CPI to show an increase of 3.4% in April from a year earlier, down 0.1 percentage points from March. Core inflation, excluding food and energy, is expected to stand at a rate of 3.6% over 12 months.