Short-Term Inflation Expectations Climb to Multi-Year Highs, NY Fed Survey Shows

U.S. consumers raised their short- and medium-term inflation outlooks in June, pushing expectations to their highest levels in years even as anticipated gasoline prices fell to a four-year low.

The Federal Reserve Bank of New York’s June Survey of Consumer Expectations, released Tuesday, showed that median inflation expectations at the one-year horizon rose 0.2 percentage points to 3.7%, the highest reading since September 2023. The three-year outlook saw an identical 0.2 percentage point bump to 3.3%, marking its highest level since June 2022. Long-term, five-year inflation expectations remained unchanged at 3.0%.

The uptick in near-term inflation anxiety occurred despite a 3.5 percentage point drop in year-ahead gasoline price expectations, which fell to 1.5%. Instead, consumers remained heavily concerned about essential services. Expected price growth for medical care jumped 0.5 percentage points to 9.4%, while rent expectations climbed 0.9 percentage points to 8.3%.

Concurrently, labor market sentiment improved. The perceived probability of losing a job over the next year decreased by 1.0 percentage point to 14.1%, falling below the 12-month trailing average. Meanwhile, the baseline probability of finding a new job if terminated rose 1.2 percentage points to 44.9%.

Purchasing power metrics remained strained, however. While median expected household income growth edged up 0.2 percentage points to 3.0%, it continues to trail overall inflation expectations. Median household spending growth expectations held steady at 5.0%.

Despite the gap between income and spending growth, consumer confidence regarding financial obligations strengthened. The average perceived probability of missing a minimum debt payment over the next three months dropped 1.8 percentage points to 10.8%, representing the lowest reading since April 2023.