Consumer Outlook for Inflation Rebounds, New York Fed Says

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Consumer expectations for inflation rebounded in May, according to a Federal Reserve Bank of New York survey, as officials planning to raise interest rates this year look for evidence that price pressures are firming.

Prices are likely to rise by 3 percent in the year through next May, according to the median response to a survey released on Monday in New York. That’s up from 2.7 percent in April, which was the lowest reading since the bank began collecting data for the survey in June 2013. Expected inflation three years ahead was unchanged at 3 percent.

Policy makers are watching inflation expectations for clues as to the direction of consumer prices. Officials say they will probably raise rates this year for the first time since 2006, as long as the job market continues to improve and they are “reasonably confident” inflation will rise toward their 2 percent target.

The Fed’s preferred measure, the price index of personal consumption expenditures, increased only 0.1 percent from a year earlier in May, and it has been below the target rate since May 2012. New York Fed President William C. Dudley said on Friday he had become a little more confident on the outlook for higher inflation.

“The firming of inflation that I anticipate reflects my expectation that resource utilization will increase and the fact that some of the factors that have pulled down inflation, such as lower oil and gas prices and a firmer dollar, have already stabilized or partially reversed,” Dudley said.

University of Michigan

Americans surveyed by the University of Michigan in May expected an inflation rate of 2.8 percent in the next year, up from 2.6 percent in April.

Benchmark 10-year Treasury yields climbed 29 basis points last week, the most since Feb. 2, as a Labor Department report showed better-than-expected gains in hiring and wage inflation last month.

Ten-year yields fell three basis points, or 0.03 percentage point, to 2.38 percent as of 11:48 a.m. in New York, according to Bloomberg Bond Trader data.

The New York Fed survey also showed a slight increase in expectations for household income growth one year ahead to 2.9 percent, matching the highest reading since the survey began.

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