By Michael S. Derby
NEW YORK (Reuters) -The expected path for inflation softened on balance in October amid rising expectations for future gasoline price increases and a largely stable outlook for employment and personal finances, the Federal Reserve Bank of New York reported on Monday.
Respondents to the bank’s latest Survey of Consumer Expectations project inflation a year from now will stand at 3.6% from September’s 3.7%, with inflation three years from now seen at 3%, the same level as the prior month, while five years from now inflation is forecast to stand at 2.7%, from September’s 2.8%.
The New York Fed found that last month the expected rise in home prices remained at a historically tepid 3%, while survey respondents marked up the projected price of future gasoline price rises to 5%, from September’s 4.8%.
The survey found little movement in how consumers view the outlook for the job market, with fewer people expecting higher unemployment next year and a small gain in those who expect to lose their jobs over the next 12 months. The expected path for spending held steady in October at 5.3%, a level well under the 7% the survey found a year ago, while the projected rise in household income was at 3.1% in October, from 3% in September.
The report also said there’s been an improvement in how households viewed their current personal financial situation, with a “mixed” view on how things will be a year from now.
The New York Fed’s report is most closely watched for its readings on inflation expectations, and it arrives at a time when some data has been spitting out a conflicted outlook for price pressures at a critical point for central bank monetary policy.
The relative stability of New York Fed expectations data contrasts with that seen in the University of Michigan Consumer Sentiment Survey. It found in November a rise in year-ahead expected inflation to 4.4% from 4.2% in October, with five-year expected inflation up to 3.2%, from October’s 3%. Those numbers followed large increases in the University of Michigan October survey, which led the survey authors to say the gains are “no fluke.”
The Fed closely watches inflation expectations data because officials believe the expected path of price pressures exert a strong influence on where inflation stands now. Over the last year and a half the Fed has aggressively raised rates in a bid to cool high inflation. It left its rate target steady at its policy meeting at the start of the month as inflation pressures have ebbed. But it kept alive the prospect of more action should inflation not fall further on the path back to 2%.
Fed Chair Jerome Powell said in his press conference after the Federal Open Market Committee meeting that expectations remain “well anchored,” adding “it's just clear that inflation expectations are in a good place” and “there's no real crack in that armor.”
In comments on Friday, Powell acknowledged “inflation has given us a few head fakes” and he reiterated again the Fed will hike rates again if deemed necessary to control inflation.
LPL Financial (NASDAQ:LPLA) Chief Economist Jeffrey Roach said, "investors should focus on the more encouraging and more robust survey out of the New York Fed," which he said draws on a bigger sample base and does more to fully capture consumer behavior than the Michigan survey.
By and large, economists are still expecting inflation to move lower albeit at a slow pace. The Philadelphia Fed said on Monday in its latest quarterly Survey of Professional Forecasters that economists expect inflation measured by the personal consumption expenditures price index, the central bank's preferred price pressure gauge, will still be over 2% through 2024, and stand at an annualized 2.3% by the final quarter of that year.
Another major test for inflation readings looms on Tuesday. The government will report on the October consumer price index, Stripped of food and energy, the core CPI is seen up by 4.1% in October, matching September's reading, while overall price pressures are seen moderating.