New York Fed survey shows inflation outlook elevated due to expected rise in housing costs

On a one-year basis, the expectation rose to 3.3%, up 0.3 percentage points from March and the highest since November 2023. For the five-year outlook, the expectation rose 0.2 percentage points to 2.8%. However, on the three-year horizon, the outlook dropped 0.1 percentage points to 2.8%.

The results mirror a University of Michigan sentiment survey released Friday, which showed the one-year outlook for May rose to 3.5%, up more than 0.3 percentage points, while the five-year outlook rose to 3.1%.

All readings are well ahead of the Fed's 2% target and reflect the stubborn nature of inflation this year after a substantial deflationary trend into 2023.

Inflationary pressures are expected to come from a variety of sources. However, the expected rise in housing prices is particularly troubling for policymakers, who had expected shelter costs to decline this year.

Survey respondents indicated they expect the median home price to increase by 3.3% over the next year, up 0.3 percentage points from the level held steady for seven months. This was the highest reading since July 2022 and was boosted by people with a high school degree or less, a low-income group of particular concern to Fed officials during a period of rising inflation in early 2022. Was.

With expected higher home costs, respondents think rents will rise 9.1%, up 0.4 percentage points from last month.

Fed officials again held the line on rates at their most recent meeting, saying they needed to see more concrete evidence that inflation is returning to the 2% target before cutting.

“Policymakers are looking for additional evidence that inflation is going to return to our 2% target, and until we have that, I think the policy rate will remain in restrictive territory,” Fed Vice Chairman Philip Jefferson said on Monday. It is appropriate to keep it.”

Consumers are seeing an 8.7% increase in medical care over the next year, up 0.6 percentage points from the March survey. They expect food prices to rise 5.3% (up 0.2 percentage points from a month ago), gasoline to rise 4.8% (up 0.3 percentage points); And college education would increase by 9%, an increase of 2.5 percentage points.

Employment expectations were mixed in the survey, with unemployment showing a rise, although the perceived likelihood of losing one's job declined. However, mobility outlook declined, with 50.9% expecting to find a job quickly after losing their current job, the lowest reading since April 2021.

The survey comes two days before the closely watched Labor Department report on the consumer price index, which is scheduled to be released on Wednesday. Economists surveyed by Dow Jones expect the all-item CPI in April to rise 3.4% from a year earlier, down 0.1 percentage point from March. Core inflation, excluding food and energy, is projected to run at a 3.6% 12-month rate.

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