U.S. Consumer Inflation Expectations Drop in New York Fed Survey

  • Top-earning, most-educated saw record-low price expectations
  • Evans worries low expectations may keep inflation below target

U.S. household expectations for inflation in three years’ time fell last month, according to a Federal Reserve Bank of New York survey, while views on future spending bounced back.

The survey showed expected inflation of 2.62 percent three years ahead in September, according to the median response, down from 2.71 percent the month before, according to New York Fed data published Tuesday. The latest update brings expectations closer to the 2.45 percent reading in January that marked the lowest level in the survey’s three-year history.

U.S. central bankers closely watch survey data on consumer inflation expectations because they believe expectations are an important determinant of actual inflation. The Fed’s preferred measure of prices, based on personal consumption expenditures excluding those on food and energy, rose 1.7 percent in the 12 months through August, and has been below the Fed’s 2 percent target for more than four years.

“We need to recognize that the predominant inflation risk facing monetary policy makers has shifted from inflation being too high to inflation being too low,” Chicago Fed President Charles Evans said Tuesday during a speech in Sydney. “I have worries, because looking at evidence from surveys of households and professional forecasters, as well as various measures coming out of financial markets, I believe expected inflation is not 2 percent, but something more like 1.75 percent.”

Expected inflation was dragged down by the most highly-educated and highest-earning survey participants, who reported record-low expectations last month, according to the New York Fed.

The median respondent expected wages to rise 2 percent over the next year, the lowest since December. The median expected change in household spending over the next 12 months rebounded to 3.7 percent in September from 3.3 percent the month before.

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