Inflation expectations rebounded in October on record-high jump in gas outlook, NY Fed survey shows

Americans grew more worried about inflation in the October, with fears emanating from an expected burst in gasoline prices, a Federal Reserve survey showed Monday.

Inflation expectations for the year ahead rose to 5.9%, up half a percentage point from September to the highest level since July, according to the New York Fed’s monthly Survey of Consumer Expectations. Three-year expectations also accelerated to 3.1%, while the five-year outlook rose to 2.4%, respective increases from 2.9% and 2.2%.

At the root of the heightened worries was an expected jump in prices at the pump, which have been declining over the past month. Respondents think gas prices will increase by 4.8% over the next year, up from 0.5% in September for the biggest one-month increase in survey data that goes back to June 2013.

The year-ahead projection for food prices increased, with consumers now anticipating a 7.6% increase, up from 6.8% in September. The outlook for medical costs and rent were little changed, with the latter up 0.1 percentage point, while the expectations for college costs fell to 8.6%, a 0.4 percentage point decline from September.

The survey comes less than a week after the Bureau of Labor Statistics reported that inflation, as gauged by the consumer price index, rose 0.4% in October. That was lower than the 0.6% Dow Jones estimate for the monthly gain, while the annual rise of 7.7% was half a percentage point lower than the previous month.

Fed policymakers have been raising interest rates aggressively this year to bring down inflation. A series of increases has brought the central bank’s benchmark rate up about 3.75 percentage points, with markets expecting additional hikes into the early part of 2023.

The increases have had some impact already, particularly in the housing market, where 30-year mortgage rates around 7% have impacted sales and prices.

Home prices were expected to nudge higher by 2%, the same as September and tied for the lowest since June 2020.

The Fed’s efforts to cool the red-hot labor market also are projected to have some impact. Some 42.9% of respondents expect the unemployment rate to be up a year from now, representing the highest level since April 2020.

The survey, however, showed a median expectation for household income of 4.3% in the next year, a record level. Spending growth rose a full percentage point to 7%.

Credit is expected to be harder to come by — a record-high 56.7% think it will be more difficult to get financing a year from now.

A separate gauge released Monday from the quarterly Survey of Professional Forecasters also pointed to higher inflation coupled with lower economic growth. The survey sees GDP growth of just 1.6% this year and 1.3% in 2023, while CPI inflation is projected to be 7.7% in 2022 and 3.4% in 2023, up from previous estimates of 7.5% and 3.2% respectively.