


One month after inflation expectations tracked by the NY Fed Consumer Survey extended their recent slide, when in December one-year inflation expectations saw the third consecutive decline in a for a series which traditionally is also a proxy for the price of oil, and which last month dropped to the lowest since Jan 2021, moments ago the NY Fed published results from the January 2024 Survey, which found that while 1- and 5-Year inflation expectations were unchanged on the month, the 3-Year inflation expectation slumped to 2.4%, from 2.6%, the lowest on record
Some more details from the latest survey: Median inflation expectations remained unchanged at the one- and five-year ahead horizons in January, at 3.0% and 2.5%, respectively. Median inflation expectations at the three-year ahead horizon declined to 2.4% from 2.6%.
Median inflation uncertainty - or the uncertainty expressed regarding future inflation outcomes - increased slightly at all three horizons.
The latest survey comes one day before the release of January CPI report, where economists forecast headline inflation will post a modest decline to 2.9% from 3.4% in December, while core inflation dips to 3.7% from 3.9% YoY.
The pullback in consumers’ near-term inflation views reflected a number of factors, as price changes declined for all goods tracked in the survey, falling by 0.3 percentage point for gas to 4.2%, by 0.1 percentage point for food to 4.9%, by 0.9 percentage point for rent to 6.4%, by 0.5 percentage point for medical care to 8.6%, and by 0.4 percentage point for the cost of a college education to 5.9%. The reading for the expected price change of gas is the lowest since December 2022, while those for food and rent were the lowest since March 2020 and December 2020, respectively.
Median home price growth expectations remained unchanged for the 4th consecutive month at 3.0%, remaining well above the series 12-month trailing average of 2.4%. And with the Fed preparing to cut rates, this is about to explode higher.
While inflation expectations slumped, there was an unexpected reversal households' expectations for earnings growth: after tumbling to the lowest level since April 2021, the one-year ahead earnings growth suddenly surged by 0.3% - the biggest monthly increase since Sept 2021 - to 2.83%...
... driven by a surge in expectations by respondents above the age of 40, those without a college degree, and those making under $50,000 - good luck to them all - while expectations for people making over $100,000 had their expectations unchanged.
Why employers would be aggressively boosting wages in one year's time if prices are set to stumble and crush margins isn't exactly clear to anyone except the NY Fed organizer of the survey who may have slipped a couple of their own preferred "results" here and there. And tied to that, the "Median expected growth in household income increased by 0.1 percentage point to 3.1% in January, remaining above its pre-pandemic February 2020 level of 2.7%." Sure, why not.
Elsewhere in the survey, perceptions of credit access also improved notably, with a smaller share of respondents saying it is harder to obtain credit now than it was a year ago and a larger share reporting it is now easier. The share of respondents expecting tighter credit conditions a year from now also declined.
Commenting on the data, Renaissance Macro said what everyone else was thinking, namely that "bth realized and expected inflation data should nudge the Fed to an adjustment in their policy stance."
Here are some other observations from the latest survey, first focusing on the labor market:
... and on consumers' household finances:
More in the full NY Fed note available here.