By Michael S. Derby
NEW YORK (Reuters) -The public’s expectations around the longer-run trajectory of inflation deteriorated in February, a report from the Federal Reserve Bank of New York said Monday.
While inflation a year from now was seen holding steady at 3%, respondents to the bank’s latest Survey of Consumer Expectations said that they see inflation three years from now moving to 2.7% from January’s 2.4%, with inflation in five years at 2.9%, from the prior month’s 2.5%.
The rise in the three-year expected rate of inflation was the first month-over-month gain since last September, while the month-over-month rise in the five year was the first since last August.
The deterioration in longer-run inflation expectations is likely to unsettle Federal Reserve officials, who are now in the preparation phase for their March 19-20 Federal Open Market Committee meeting. While Fed officials are almost certain to hold rates steady at the gathering, many policy makers have said they expect to cut rates at some point later this year as inflation pressures have been moderating back toward the 2% target.
Fed officials believe that where the public expects inflation to go strongly influences where it stands today. They’ve repeatedly flagged the relative stability of longer-term expectations as a reason they are confident inflation will return to the target.
Officials have also warned the road to lower inflation will likely be uneven and bumpy. Some recent inflation data has proven stronger-than-expected, which may have influenced the recent round of expectations data.
Despite the shift in longer-run expectations some of the details of what the public projects for price pressures was more benign. Survey respondents said they see price rises for medical care and college ebbing, while future food price gains were seen holding steady.
Respondents saw last month a decline in year-ahead rent price gains to 6.1% from January’s 6.4%, the lowest reading since December 2020. Home price increases were seen flat at 3% and gasoline prices were seen rising only modestly compared to January at 4.3%.
The report also found that those who most strongly projected rises in longer run inflation expectations had at best high school degrees, while noting a declining overall disagreement about the future path of inflation.
Survey respondents in February held steady on their expectations for future income and earnings growth, while boosting their spending expectations. Respondents were a little more downbeat on job market prospects and said last month that their views on credit access had also sagged.