The inflation trajectory in the United States is expected to soften in June, driven by lower forecasts for price increases for a wide range of consumer goods and services, the Federal Reserve Bank of New York said in a report released Monday.
The bank's latest consumer expectations survey projects inflation a year from now at 3% as of June, below the 3.2% rise expected in May. In three years, inflation is projected to be 2.9%, down from 2.8% in May. The five-year inflation forecast is 2.8%, down from May's 3%.
According to the report, projected increases in prices for gasoline, food, rent, health care, and education in June decreased compared to May expectations. Expected house price growth in the coming year also fell, reaching 3% in June versus 3.3% in May.
These expectations of easing price pressures come as survey respondents say their future income growth will be higher and that current spending growth will remain stable and above levels seen before the coronavirus pandemic.
The survey also found that respondents are finding it increasingly difficult to obtain credit. They also claim that their households' financial situation has deteriorated. Opinions about the state of the labor market were mixed.
The New York Fed's report, which is closely watched to gauge public inflation expectations, comes at a time of intense debate among central bankers about whether inflation pressures have eased enough to lower short-term interest rates.
Fed policymakers aim to sustainably reduce inflation to 2%. After unexpectedly strong data at the start of the year, they are cautiously interpreting the recent decline in inflation as a possible condition for a rate cut.
A decline in expected inflation could potentially boost central bankers' confidence that price pressures are moving in the right direction. Fed officials often consider the stability of inflation expectations as a positive sign that inflation will return to target.
John Williams, the president and chief executive officer of the Federal Reserve Bank of New York, recently stated that long-term inflation expectations have remained notably stable and close to the FOMC's 2% target despite major shocks.
He further noted that medium-term expectations returned to pre-pandemic levels in 2022 and that short-term expectations followed suit in 2023.
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