U.S. consumers expect a sharp fall of inflation

The Federal Reserve Bank of New York released the latest data. From them we can conclude that Americans are expecting a sharp decline in both the long and short term.

On Monday, the New York Fed's consumer expectations survey for August was released. It showed that during the month, median expectations for one- and three-year inflation fell to 5.7% and 2.8%, respectively. In July, the figures were 6.2% and 3.2%, respectively.

For much of the year, inflation was at its highest level in forty years. In July, consumer price growth reached 8.5% year-on-year.

Declining gasoline prices contributed to the decline. The national average cost per gallon (≈4.5 liters of gasoline) fell to $3.71. This is well below the peak it reached in June. Back then, the cost per gallon of gasoline was over $5.

Key measures of U.S. inflation will be released this week, one of which is a survey. It measures consumer expectations for overall inflation as well as price levels in the major items of citizen spending (food, fuel, housing and education).

On September 20 and 21, the central bank will meet. There, the degree of rate hikes will be determined, given the data from the survey and two other key inflation indicators. The goal of the monetary policy meeting is to fight inflation at historic levels.

The Federal Reserve Bank of New York's survey is likely welcome news for the Federal Reserve, as higher inflation expectations could lead to more workers demanding higher wages to compensate for declining purchasing power. Studies have shown that this will lead to an unwinding of the wage and price spiral.

Mark Zandi, senior economist at Moody's Analytics, said in an interview with CNN Business that lower inflation expectations in August are not enough reason for the Fed to stop raising interest rates.

Dean Baker, macroeconomist and co-founder of the Center for Economic and Policy Research, said the easing of expectations is caused by declining prices in consumers' daily lives.

Gasoline, housing, food and rent prices have fallen into the category of spending in which consumers expect inflation to decline. Consumers expect education spending to remain flat, while medical prices will rise.

Consumers last month were optimistic about their households' future income and financial situation. At the same time, consumers rated the possibility of losing their jobs as less likely, and expectations for spending growth, interest rates on savings and stock prices also improved.

Source: CNN Business