New York Fed "1-Year Expected Inflation 3.3%"
Highest in 5 Months
Focus on June 15 CPI Data That Will Influence US Interest Rate Cuts
U.S. consumers' expected inflation rate for the next year reached its highest level in five months. As the Federal Reserve's (Fed) interest rate cuts depend on the slowdown of inflation, consumer concerns over high prices have intensified. With persistent hot inflation this year, if the Consumer Price Index (CPI) for April, to be released on the 15th, exceeds market expectations, the timing of the Fed's rate cuts could be further delayed.
On the 13th (local time), the New York Federal Reserve Bank's consumer expectations survey showed that the expected inflation rate for the next year was 3.3%, up 0.3 percentage points from March's 3.0%, marking the highest level in five months since last November.
The inflation expectation for three years ahead fell from 2.9% to 2.8%, while the five-year inflation expectation rose from 2.6% to 2.8% during the same period.
Respondents anticipated price pressures to increase across all sectors, including rent, groceries, gasoline, and medical expenses, one year from now. Notably, the expected housing price growth rate was 3.3%, the highest in 21 months since July 2022. Relatedly, the expected rent increase rose by 0.4 percentage points from the previous month to 9.1%. Groceries increased by 0.2 percentage points to 5.3%, gasoline by 0.3 percentage points to 4.8%, medical expenses by 0.6 percentage points to 8.7%, and college tuition by 2.5 percentage points to 9%.
Earlier, the University of Michigan also reported a rise in one-year-ahead expected inflation. In the May survey, the one-year inflation expectation was 3.5%, up 0.3 percentage points from the previous month.
The rebound in short-term expected inflation is a major concern for monetary authorities fighting inflation, as it can lead to actual price increases. Rising inflation expectations may cause households and businesses to purchase goods in advance to hedge against price hikes, creating a vicious cycle that further drives up actual prices.
The New York Fed's expected inflation survey results are particularly noteworthy as they come ahead of the April CPI data release on the 15th. With the CPI exceeding market expectations for three consecutive months this year, even if the April figure only meets forecasts, the market is expected to feel significantly relieved. The market anticipates that the April CPI rose 3.4% year-over-year, and the core CPI?which excludes volatile food and energy prices and reflects the underlying inflation trend?increased 3.6% year-over-year. However, if the April CPI again surpasses expert forecasts, it could deliver a significant shock to the market, increasing the likelihood of a further delay in the Fed's rate cut timing.
On the same day, Philip Jefferson, the Fed's vice chair and considered the second-in-command, said, "Policymakers continue to look for additional evidence that inflation is returning to the 2% target," adding, "Until then, I believe it is appropriate to maintain policy rates at restrictive levels."
Some market observers predict that signs of disinflation (a slowdown in price increases) will become more pronounced starting in April.
Morgan Stanley analyzed, "From the second half of 2024, monthly CPI figures will slow down along with disinflation," adding, "This will provide the Fed with the confidence it needs that inflation is on a sustained path toward the target." They also forecast, "The Fed will cut rates three times this year?in September, November, and December."
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