Jan 9, 2024 - Economy

Americans' inflation expectations are getting back to normal

Data: Federal Reserve Bank of New York; Chart: Axios Visuals
Data: Federal Reserve Bank of New York; Chart: Axios Visuals

New survey data from the New York Fed suggests Americans' expectations for inflation in the years ahead fell precipitously in December — back, roughly speaking, to pre-pandemic levels.

Why it matters: That's great news, if you believe — as many economists do — that high inflation expectations can be self-fulfilling.

By the numbers: Over the next year, the median consumer anticipated 3% inflation in December, down from 3.4% in November, according to the Survey of Consumer Expectations.

  • For the next three years, that was down to 2.6%, from 3%. For the next five years, that fell to 2.5% from 2.7%.

State of play: The new numbers are comparable to levels seen before the 2021-2022 inflationary surge. For example, the median three-year inflation expectation averaged 2.6% over the course of 2019, the same as the December level.

  • To the extent policymakers at the Fed have fretted over the possibility that inflationary psychology would become deeply entrenched, that looks not to have happened.
  • It also bodes well for the broader consumer sentiment outlook, which has been hammered by inflation.

Yes, but: Some cracks are appearing in Americans' outlook for the job market, per the data. The median respondent saw their income rising 3% over the next year, down from 3.1% in November and 4.6% a year earlier.

  • The average respondent saw a 13.4% chance of losing their job over the next year, down from November but well above levels in 2022 and earlier in 2023.
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