US Consumer Price Outlook Stable... Delinquency Concerns Highest in 4 Years 4 Months

New York Fed Consumer Expectations Survey Results Released
1-Year and 5-Year Inflation Expectations Maintained
3-Month Delinquency Probability at 13.6%... Highest Since 2020

As inflationary pressures in the United States ease, consumers' inflation expectations have also remained stable. However, concerns about the possibility of delinquency due to failure to repay debt on time have risen to the highest level in over four years.

According to the August Consumer Expectations Survey (CES) released on the 9th (local time) by the Federal Reserve Bank of New York, the median expected inflation rates for one year and five years ahead were 3% and 2.8%, respectively, the same levels as in July.

The median expected inflation rate for three years ahead rose from 2.3% in July to 2.5% in August. In July, it recorded the lowest level since the New York Fed began compiling the related statistics in June 2013, but it increased by 0.2 percentage points in just one month.

When expected inflation rises, it can stimulate prices and wages, potentially prolonging inflation, so monetary authorities track inflation expectations over various time horizons. As inflation continues to slow toward the Federal Reserve's (Fed) 2% target, the Fed is expected to begin cutting interest rates at the Federal Open Market Committee (FOMC) meeting scheduled for the 17th-18th.

Despite the overall stable inflation expectations in August amid slowing inflation, consumers anticipated increases in gas, rent, and medical costs. Specifically, gas prices are expected to rise by 3.6% over the next year, up 0.1 percentage points from July. Rent inflation expectations increased from 7.1% in July to 7.3%, and medical cost inflation rose from 7.6% to 8% during the same period. Conversely, food price inflation was expected to decrease from 4.7% to 4.4%.

Outlooks on the labor market were mixed. The average unemployment rate expectation, which reflects the probability of higher unemployment one year from now, rose from 36.6% in July to 37.7% in August. The expectation of the likelihood of finding a new job after losing one decreased from 52.5% in July to 52.3% in August. These figures are significantly lower than the 12-month average of 53.9% and the level of 55.7% one year ago. However, the median expected income growth rate one year ahead increased from 2.7% to 2.9%.

However, the likelihood of failing to repay debt on time over the next three months increased. The probability of delinquency due to failure to repay debt on time rose for the third consecutive month from 13.3% in July to 13.6%. This is the highest level since April 2020, indicating that consumers' concerns about delinquency have grown accordingly.