US consumers’ near-term inflation expectations declined in December2023 to the lowest level since January 2021, according to a Federal Reserve Bank of New York survey released on Monday (January 8).

The survey unveiled a marked decline in consumer inflation expectations across all observed horizons and varied sentiments across different economic indicators. The median year-ahead inflation expectations fell for a third month to 3.0 per cent, down from 3.4 per cent in November. 

Over three years, this expectation fell from 3.0 to 2.6 per cent, and over five years, it declined from 2.7 to 2.5 per cent. According to the survey, the “median one-year-ahead expected earnings growth is now at 2.5 per cent, the lowest since April 2021. This is primarily influenced by respondents with a high school diploma or less.”

Additionally, expectations for earnings growth and spending growth have slightly decreased. 

Sector-specific price change expectations

As it regards sector-specific price change expectation, the survey showed that college education costs should increase by 0.5 percentage points to 6.3 per cent, while food costs have gone down by 0.3 percentage points, to 5.0 per cent. As for rent costs, this is anticipated to go down by 0.7 percentage points to 7.3 per cent while gas and medical are costs should remain unchanged at 4.5 and 9.1 per cent, respectively. 

In terms of job market outlook, the mean perceived probability of losing one’s job in the next year has marginally decreased to 13.4 per cent. Concurrently, there’s a slight increase in the probability of voluntarily leaving a job, which is now up to 20.4 per cent, along with a marginal rise from 55.2 to 55.9 per cent in the perceived chances of finding a new job if the current one is lost. 

Household income and financial situations

The median expected growth in household income slightly decreased to 3.0 per cent. However, based on the survey findings, this remained above the pre-COVID-19 pandemic level of 2.7 per cent. 

Notably, perceptions regarding households’ current financial situations have improved, with fewer respondents feeling worse off than a year ago. Regarding interest rates and stock market expectations, the probability of an interest-rate increase in the next 12 months fell to 25.9 per cent, the lowest since November 2021. 

There was a marginal increase in the expectation of higher stock prices in the next 12 months, to 36.7 per cent.