Fed: Consumer Sentiment Up as Inflation Expectations Decrease

Consumer sentiment is improving overall, with decreased expectations of inflation.

According to the July 2023 Survey of Consumer Expectations released by the Federal Reserve Bank of New York’s Center for Microeconomic Data, inflation expectations declined at the short-, medium- and longer-term horizons.

At the one-year-ahead horizon, consumers’ median inflation expectations dropped from 3.8% to 3.5%. At both the three-year and five-year-ahead horizons, they declined from 3.0% to 2.9%, the New York Fed said in a Monday (Aug. 14) press release.

The survey also revealed that median year-ahead expected price changes declined for all commodities, including 0.2 percentage points for gas, 0.1 percentage points for food, 0.9 percentage points for medical care, 0.3 percentage points for the cost of a college education, and 0.4 percentage points for rent.

“The current readings for food, medical care and rent are the lowest since September 2020, November 2020 and January 2021, respectively,” the New York Fed said in the release.

It was reported in May that consumers don’t view inflation with the same importance as they did just a year ago. Inflation’s ebbing influence as a hot-button topic may be because its pace has tempered from last year’s astronomical rise.

In other findings from the July 2023 Survey of Consumer Expectations, in terms of the labor market, consumers’ median one-year-ahead expected earnings growth decreased by 0.2 percentage points to 2.8%, according to the Monday press release.

On the other hand, the survey also showed improved consumer sentiment around the labor market, the release said. The mean probability of losing one’s job in the next 12 months decreased by 1.1 percentage points to 11.8%, while the mean probability of finding a job (if one’s current job was lost) increased from 55.3% to 55.8%.

Mean unemployment expectation fell to its lowest reading since April 2022, decreasing by 1.0 percentage points to 36.7%.

In the area of household finance, the mean perceived probability that the average interest rate on saving accounts will be higher in 12 months increased by 1.1 percentage points to 30.9%, according to the press release.

The share expecting to be better off a year from now is the highest since September 2021. More respondents reported being better off in July than they were a year ago, and fewer reported being worse off.