Americans’ expectations for inflation over the next year fell in January to the lowest level in 12 months, according to a survey released Monday by the Federal Reserve Bank of New York.
The median expectation for inflation one year from now declined to 3.1 percent from 3.4 percent in December, matching the January 2025 reading. The decline marks a continuation of the cooling in inflation expectations that began after peaks in mid-2022.
The New York Fed’s Survey of Consumer Expectations showed inflation expectations remained steady at 3.0 percent for both the three-year and five-year horizons, suggesting Americans believe the moderation in price pressures will persist over the medium term. The longer term expectations are in-line with pre-pandemic expectations.
Consumers reported lower expected price increases across several key categories. Gas price expectations fell sharply, down 1.2 percentage points to 2.8 percent. Rent expectations dropped 0.9 percentage point to 6.8 percent, while medical care cost expectations declined 0.1 percentage point to 9.8 percent. Food price expectations held steady at 5.7 percent, while college education cost expectations rose 0.7 percentage point to 9.0 percent.
Home price growth expectations fell to 2.9 percent, the lowest reading since July 2023.
The survey also showed modest improvements in labor market expectations. The mean perceived probability of losing one’s job in the next 12 months
decreased to 14.8 percent, while the probability of finding a job within three months if currently unemployed rose 2.5 percentage points to 45.6 percent, though it remains below the trailing 12-month average.
Expected earnings growth increased slightly to 2.7 percent, driven primarily by households earning under $50,000 annually.
Household financial sentiment deteriorated somewhat, with a larger share of respondents reporting their households were worse off compared to a year ago. Future expectations also weakened, with fewer people expecting to be better off a year from now. Taken together, these may be signs that monetary policy remains too restrictive.
Consumers expect government debt to grow 9.3 percent over the next year, the highest reading since July 2024. Expected household spending growth remained unchanged at 4.9 percent.
Broader Trend Confirmed
The New York Fed findings align with other recent surveys showing a broad-based cooling in inflation expectations across the economy.
The University of Michigan’s preliminary February consumer sentiment survey, also released this month, showed year-ahead inflation expectations falling to 3.5 percent from 4.0 percent in January, the lowest reading since January 2025.
“Year-ahead inflation expectations fell from 4.0% last month to 3.5% this month, the lowest reading since January 2025,” said Joanne Hsu, director of the Surveys of Consumers at the University of Michigan. The reading still exceeds those seen in 2024 and remains well above the 2.3-3.0% range seen in the two years before the pandemic.
Businesses are also reporting lower cost pressures. The Federal Reserve Bank of Atlanta’s Business Inflation Expectations survey for January showed firms’ year-ahead unit cost expectations decreased to 2.0 percent, matching the prepandemic average from January 2017 through December 2019. The figure has fallen considerably from a peak of 3.8 percent in April 2022.
“Firms’ year-ahead unit cost expectations have fallen considerably since hitting a peak of 3.8 percent in April 2022 but remain somewhat elevated relative to their prepandemic average of 2.0 percent,” the Atlanta Fed reported.
The convergence of falling inflation expectations among both consumers and businesses suggests price pressures continue to moderate, defying the forecasts of some economists and Fed officials that tariffs would push up prices this year.
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