NY Fed Finds Inflation Expectations Ease, but Spending Outpaces Income

The June Survey of Consumer Expectations by the Federal Reserve Bank of New York, released Tuesday (July 8), found at least some optimism on inflation, where price increases are still likely to be elevated, but at a slowing pace.

Spending expectations were tempered, but income is not likely to keep up with inflation, per the data.

The optimism may be fleeting, given the fact that the data was collected by the Fed before the latest round of tariffs levied by the United States on trading partners. As of Tuesday, the President Donald Trump administration has said in a series of letters that new rates will go into effect at the beginning of next month.

The data showed that inflation expectations are on pace with what had been expected at the beginning of this year. The perception of job prospects — in terms of finding a job if one’s current role were to be lost — worsened a bit.

The June survey indicated that short-term inflation expectations eased slightly, with the one-year-ahead forecast falling to 3%, reaching the level recorded during the second half of 2024, while medium- and long-term projections remained stable at 3% and 2.6%, respectively.

Regarding commodities, price expectations one year ahead rose in five out of six measured categories in June. Gas price expectations increased to a 4.2% gain (up 54% compared to the data recorded in May), marking the highest point in a year. Meanwhile, expectations for medical care and college education price changes both rose by more than 20% compared to May, reaching 9.3% and 9.1%, respectively — levels not seen since 2023 in both cases.

With a bit more granular detail on just where consumers think things will get pricier, they seem to be girding to spend more on life’s essentials. Median price change expectations for rent in the year ahead rose in June, to 9.1%. The only category that did not experience an increase in price expectations was food, which remained at the same level as in May (5.5%). But that’s still an elevated pace and has accelerated from the 4% expectation for food inflation that had been measured at the end of last year.

Labor market indicators showed signs of improving sentiment. Households reported a lower perceived probability of losing their job, which dropped to 14%, the lowest since December. Unemployment expectations also decreased to 39.7% from recent peaks of 44%.

Expected earnings growth edged down to 2.5%, continuing a trend of stagnation seen since 2021. In addition, one-year-ahead income growth expectations fell to 2.45%, remaining below the 12-month trailing average of 2.8%, the lowest since December 2023. Earnings and income, then, are falling below the expected pace of price increases.

In terms of household finances, expected spending growth declined to 4.8%.

Insofar as funding those purchases, we might expect to see more spending on credit cards.

“Perceptions of credit access compared to a year ago showed a smaller share of households reporting it is harder to get credit,” the survey said. “Expectations for future credit availability also improved in June, with a smaller share of respondents expecting it will be harder to obtain credit in the year ahead.”

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