Consumers Eye Slowing Inflation, but Relief May Be Temporary

The news that consumers expect to see a slowdown in inflation is, arguably, optimistic.

As PYMNTS reported Monday (June 9), the Federal Reserve Bank of New York’s latest reading on inflation expectations indicates that households see declines in inflation’s growth — we emphasize the “growth” here, as it still indicates an expected surge in prices through the next year.

Median inflation expectations for one year ahead declined by 0.4 percentage point to 3.2%. For three years ahead, it declined by 0.2 percentage point to 3%; for five years ahead, it declined by 0.1 percentage point to 2.6%, according to the release. The annualized paces are still broadly above the target rate that is often the goal of the central bank itself.

The data also shows that consumers expect food prices to see an accelerated pace of inflation over the next year. In fact, per the Fed, the year-ahead expected change in food prices increased by 0.4 percentage point to 5.5%, the highest level since October 2023. That pace is quite a bit higher than the overall pace described above.

There are indications that a slowdown in inflation would scarcely be felt by the average U.S consumer. 

Consider the fact that the same survey released on Monday showed that consumers are paring their spending plans. Median nominal household spending growth expectations declined by 0.2 percentage point to 5%, remaining just above the trailing 12-month average of 4.9%. Expectations for future credit availability, in the words of the Fed survey, “deteriorated, with the share of respondents expecting it will be easier to obtain credit a year from now decreasing to 10.6% from 12.1%.”

Credit would be needed as an option to plug the gaps, as the median expected growth in household income increased, but not by much. The Fed reported that households see their incomes rising by 0.1 percentage point to 2.7% through the next year, as surveyed last month, while remaining well below the trailing 12-month average of 3%. Incomes are rising more slowly than inflation, certainly as perceived in the year ahead. 

We’ll know more about the reality of prices when the Consumer Price Index is released on Wednesday (June 11). As always, the categories are volatile. Last month, we reported that the cost of housing gained momentum; food saw a bit of a slowdown in inflation, due in part to a pullback in egg prices. 

The difference between what the government reports and what is felt in the pocketbook has been detailed by PYMNTS. Consumers measure inflation, PYMNTS CEO Karen Webster wrote, “by her perception of how much more things cost [and] uses that as a benchmark for how she measures a healthy economy.” 

A separate PYMNTS Intelligence report surveyed businesses’ planned responses to the ongoing uncertainty over tariffs: 42% of goods firms and 21% of services firms said they planned to increase prices in response to tariffs. The New York Fed said in a recent study, as reported last week, that nearly a third of manufacturers and about half of service companies had already begun passing all of those higher costs to consumers.

Consumers, then, may be (slightly) more sanguine about inflation, but the reality may sting our collective wallets.

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