(Bloomberg) — Expectations for US inflation three years ahead fell to 3.6% in June from 3.9% a month earlier, the biggest drop since January, according to the latest survey by the Federal Reserve Bank of New York.
The decline may ease the Fed’s concerns that inflation expectations are at risk of becoming unanchored, one reason why the US central bank changed course last month and raised interest rates by 75 basis points. The three-year outlook hit a high of 4.2% in October .
The inflation outlook one year ahead continued to worsen, according to the New York Fed’s June Survey of Consumer Expectations published Monday. Median expectations rose to 6.8%, the highest reading since the survey began in 2013, from 6.6% the previous month. Economists surveyed by Bloomberg estimate that consumer prices rose 8.8% in June, which would be a fresh four-decade high. The Labor Department will release the June CPI report on Wednesday.
The poll is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 heads of household.
US inflation has surged in the past year, driven by pandemic-related supply shortfalls and an energy crunch triggered by the war in Ukraine, as well as strong consumer demand bolstered by fiscal stimulus and low interest rates. The Fed is seeking to rein in prices via higher interest rates without tipping the economy into recession, an outcome that economists see as increasingly likely.
The New York Fed recently added five-year expectations to its survey. Consumers expect prices to rise at a 2.76% pace over that period, though there was a wide divergence. The lowest quartile of the survey expected inflation of -1%, while respondents in the top quarter see inflation at 6%.
There’s also some regional variation, with inflation expectations worsening in the West, Midwest and South last month even as they eased in the Northeast.
One-quarter of respondents expect prices in three years time to be rising by more than 8%.
Expected inflation in home rentals over the coming year continued to climb in June, hitting a series record, while consumers also project food prices to keep rising by more than 9%.
The New York Fed survey also highlights the souring mood of the public. It found that household incomes are expected to increase by 3.2%, well below the expected rate of inflation.