U.S. consumers see inflation rising further in the year ahead but expect a more moderate pace over the longer term in a signal that inflation expectations — a key dynamic being closely watched by Federal Reserve officials — remain reasonably anchored, a survey from the New York Fed showed on Monday.
At the same time, consumers grew more pessimistic in June about their personal financial situations and about the U.S. job market, the New York Fed's monthly Survey of Consumer Expectations showed.
The median expectation among consumers for the rate of inflation in the next year rose to 6.8% in June, the highest since the survey's launch in 2013, from 6.6% in May, the survey said. But their view of the rate of inflation three years from now dropped to 3.6%, the lowest since January, from 3.9%.
Last month, indications in the New York Fed survey and another from the University of Michigan that consumers were starting to predict larger price increases over a longer horizon proved alarming to Fed officials. The two reports were key drivers behind their decision to raise interest rates at their June meeting by 75 basis points — the most since 1994 — both to try to stall inflation that is running at a 40-year high and to thwart a continued rise in inflation expectations.
Monday's survey result would be a welcome development in that regard even as a benchmark reading of consumer prices due later this week is expected to show little relief from inflation. The Labor Department's Consumer Price Index, due out Wednesday, is expected to show prices rose by 8.8% in June from a year earlier, the most since December 1981.
With the Fed having raised rates by 1.5 percentage points so far this year and more to come, consumers are growing more pessimistic about their personal finances and the job market.
For the first time in the series' nine-year history, more than half of respondents said their financial situation in the last year had grown either "much worse" or "somewhat worse." Meanwhile, nearly 45% said the same about their expectations for personal financial wellbeing in the year ahead, also a series high.
Consumers on average assign a 40.4% probability that the unemployment rate will be higher a year from now, up from a 38.6% probability in May.
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