Consumer Inflation Expectations Largely Unchanged in January: NY Fed — Evening Brief – 02.10.25

Consumers kept their inflation expectations unchanged for both the near-term and medium-term timeframes, according to the Federal Reserve Bank of New York’s January 2025 Survey of Consumer Expectations. The stability suggests a steady outlook among consumers, despite ongoing economic conditions.

For the year-ahead period, however, consumers modestly increased their expectations for income growth, indicating optimism regarding their financial prospects. On the other hand, they lowered their expectations for spending, reflecting a more cautious outlook on consumption.

Inflation expectations remained stable for the year-ahead and three-year horizons, with the median inflation expectation holding steady at 3.0%, unchanged from the prior survey. However, a notable shift occurred in the five-year-ahead inflation expectation, which increased by 0.3 percentage points, rising to 3.0%. This marks the highest level for this long-term inflation expectation since May 2024.

The survey revealed a start contrast from the University of Michigan consumer sentiment released last Friday, which showed a surge in one-year inflation expectations to 4.3% from 3.3% previously. The gap between the NY Fed and University of Michigan surveys is now the widest since November of 2023.

As Bloomberg notes, inflation expectations have gained new significance in the ongoing debate over the future direction of monetary policy, especially considering President Donald Trump’s moves to impose tariffs on the country’s biggest trading partners.

The survey showed an increase in inflation expectations for a range of everyday items over the next year, including gas, food, medical care, college tuition and rent. Additionally, the survey highlighted a growing divergence in consumer expectations for inflation in the year ahead. The gap between the 25th-percentile and 75th-percentile respondents widened to the largest since the middle of 2023.

Meanwhile, household income growth expectations showed a modest increase. The median expected growth in household income for the year ahead rose by 0.2 percentage points to 3.0%, aligning with the expected inflation rate for the same period. Since August 2023, the expected growth in household income has been fluctuating within a narrow range of 2.8% to 3.1%.

There were also several important shifts in the consumer outlook, particularly regarding household spending and credit availability. Consumers’ expectations for spending growth over the next year decreased by 0.4 percentage points to 4.4%, marking its lowest level in four years. Despite this dip, the expected spending growth remains above pre-pandemic levels. In a positive development, the net share of households reporting that it is easier to obtain credit compared to a year ago increased. Looking ahead, consumers are more optimistic about future credit availability, with expectations for accessing credit improving.

There has been a noticeable shift in consumers’ concerns about job security. The mean perceived probability of losing one’s job in the next 12 months rose by 2.3 percentage points to 14.2%.