Falling gas prices give hope that inflation will ease, New York Fed survey shows

Lower gas prices are boosting optimism that inflation is on the way down, according to a survey Monday by the New York Federal Reserve.

Respondents to the central bank’s August survey of consumer expectations indicated they expect the annual inflation rate to be 5.7% a year from now. That’s down from 6.2% in July and the lowest level since October 2021.

Three-year inflation expectations fell to 2.8% in August from 3.2% the previous month. It was tied for the lowest level for this measure since November 2020.

The downgraded outlook came amid a drop in gasoline prices from more than $5 a gallon. gallon earlier this summer, a nominal record high. The current national average is about $3.71 per gallon, still well above the price a year ago, but down about 26 cents from the same time in August, according to AAA.

Along those lines, consumers now expect gas prices to be little changed a year from now, according to the Fed survey. Food prices are expected to continue rising, but the expected increase of 5.8% a year from now is 0.8 percentage points lower than in July.

Rents are expected to increase by 9.6%, but this is down 0.3 percentage points from the July survey.

The numbers come as the Fed uses a series of aggressive rate hikes to combat inflation, which remains near its highest level in more than 40 years. The central bank is widely expected to approve a third consecutive 0.75 percentage point increase when it meets again next week.

While consumers expect inflationary pressures to ease somewhat, they still believe the cost of living will escalate.

Median expectations for household spending over the next year rose 1 percentage point to 7.8% in August, a rise in outlook driven mainly by those with a high school education or less and a group largely made up of lower wage earners .

Also, respondents said that it is more difficult to obtain credit now. Those who report that it is harder now to get credit rose to an all-time high, with 57.8% reporting that it is either harder or much harder, the New York Fed reported.

Those who expect to miss a minimum debt payment in the next three months also rose by 12.2%, a 1.4 percentage point increase that was the highest since May 2020.

The Bureau of Labor Statistics will publish the consumer price index for August on Tuesday. Economists surveyed by Dow Jones expect CPI to have risen 8% from a year ago, though they see a 0.1% drop from July. Excluding food and energy, core CPI is expected to increase 6% year-on-year and 0.3% month-on-month.