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People Less Worried About Inflation

The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the July 2022 Survey of Consumer Expectations, which shows substantial declines in short-, medium- and longer-term inflation expectations. Expectations about year-ahead price increases for gas and food fell sharply. Home price growth expectations and year-ahead spending growth expectations continued to pull back from recent series highs. Households’ income growth expectations improved.

The main findings from the July 2022 Survey are:

Inflation

  • Median one- and three-year-ahead inflation expectations both declined sharply in July, to 6.2% and 3.2% from 6.8% and 3.6% in June respectively. Both decreases were broad based across income groups, but largest among respondents with annual household incomes under $50k and respondents with no more than a high school education. The measures of disagreement across respondents (the difference between the 75th and 25th percentiles of inflation expectations) increased at the one-year-ahead horizon and decreased noticeably at the three-year-ahead horizon.
  • Median five-year ahead inflation expectations, which have been elicited in the monthly SCE core survey on an ad-hoc basis since the beginning of this year, also declined to 2.3% from 2.8% in June. After being stable at 3.0% during the first three months of the year, the series has been trending down since. Disagreement across respondents in their five-year ahead inflation expectations remained unchanged in July.
  • Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—declined slightly at both the one- and three-year-ahead horizons. Uncertainty at the five-year-ahead horizon decreased more substantially.
  • The median expected change in home prices one year from now dropped sharply to 3.5% from 4.4%, its third consecutive decrease and its lowest reading of the series since November 2020. The decline was broad-based across education and income groups and across census regions, but was largest in the Northeast census region.
  • Expectations about year-ahead price changes decreased sharply by 4.2 percentage points for gas (to 1.5%) and by 2.5 percentage points for food (to 6.7%). The decrease in expected gas price growth was the second largest in the series, just below the 4.5 percentage point decline in April of this year. The decline in food price growth expectations was the largest observed since the beginning of the series in June 2013. There were smaller declines in expectations about year-ahead changes in rent (from 10.3% to 9.9%), medical care (from 9.5% to 9.2%), and college education (from 8.7% to 8.4%).
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Labor Market

  • Median one-year-ahead expected earnings growth remained unchanged at 3.0% in July for the seventh consecutive month.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 0.2 percentage points to 40.2%.
  • The mean perceived probability of losing one’s job in the next 12 months declined slightly to 11.8% from 11.9%, remaining well below its pre-pandemic reading of 13.8% in February 2020. The mean probability of leaving one’s job voluntarily in the next 12 months rose to 19.5% from 18.6% in June. The series has moved within a narrow 18.6% to 20.4% range over the past year.
  • The mean perceived probability of finding a job in the next three months (if one’s current job was lost) declined to 55.9% from 56.8%, moving slightly below its trailing 12-month average of 56.5%.

Household Finance

  • The median expected growth in household income increased by 0.2 percentage points in July to 3.4%, a new series high. The increase was most pronounced for respondents without a college education and with lower (below $50k) annual household incomes.
  • Median year-ahead nominal household spending growth expectations fell by 1.5 percentage points to 6.9% in July, well below its series high of 9.0% in May, but remains above its trailing 12-month average of 6.4%. The decline, the largest in this series, was broad-based across age, education, and income groups.
  • Perceptions of credit access compared to a year ago continued to deteriorate in July, with the share of respondents finding it harder to obtain credit now than a year ago reaching a series high. Expectations about future credit availability improved slightly.
  • The average perceived probability of missing a minimum debt payment over the next three months decreased by 0.5 percentage points to 10.8%, remaining below its pre-pandemic level of 11.4% in February 2020.
  • The median expectation regarding a year-ahead change in taxes (at current income level) increased by 0.4 percentage points to 4.9%.
  • Median year-ahead expected growth in government debt decreased by 0.4 percentage points to 10.7%.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now decreased to 34.1% from 35.7%.
  • Perceptions about households’ current financial situations compared to a year ago improved slightly in July, with slightly fewer respondents reporting being financially worse off than they were a year ago. Respondents were also more optimistic about their household’s financial situation in the year ahead, with fewer respondents expecting their financial situation to deteriorate a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased to 34.3% from 33.8%.
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