Consumers are growing more optimistic that inflation is on the way down, according to a New York Federal Reserve survey released Monday.
The central bank’s monthly Survey of Consumer Expectations for May showed one-year inflation expectations down 0.3 percentage point to a 4.1% rate.
That’s the lowest annual outlook since May 2021, just as inflation was beginning to spike to its highest level in more than 41 years. The one-year expectation then was 4%; inflation as measured by the consumer price index actually would rise to 8.6% a year later.
In the current case, the survey matches general expectations that while prices are still well above the Fed’s 2% annual target, the general trend is lower as some of the Covid pandemic-specific factors such as outsized demand for big-ticket goods and supply chain clogs are easing.
Still, median inflation expectations over the longer run edged higher. The three- and five-year outlooks both increased 0.1 percentage point to respective readings of 3% and 2.7%.
Some of the inflation rise has been fed by accelerating wages, and the survey showed the outlook there is also diminishing. One-year expected earnings growth fell to 2.8%, down 0.2 percentage point since April and in keeping with the general range since September 2021.
The survey also reflected how resilient the labor market has been.
Expectations for losing one’s job fell 1.3 percentage points to 10.9%, the lowest since April 2022. The mean likelihood of leaving one’s job also fell half a percentage point to 19.1%.
The job market strength has come despite a series of 10 Fed interest rate hikes aimed in large part at correcting a labor imbalance in which there were 1.8 job openings for every available worker in April. Markets largely expect the Fed to skip hiking rates at its meeting this week as policymakers process the impact that their moves have had on economic conditions.
The survey also showed household finances remain solid, with spending expected to increase 5.6% over the next year, up 0.4 percentage point from April but below the 6.7% average over the previous 12 months.