Short-term inflation expectations in US falls sharply: Fed survey

ISTANBUL

Short-term inflation expectations in the US declined sharply in February, according to a survey released Monday by the US Federal Reserve.

At the one-year-ahead horizon, the median inflation expectations dropped by 0.8 percentage points to 4.2%, showed the Fed’s February 2023 Survey of Consumer Expectations.

While the three-year-ahead expectations remained at 2.7%, the five-year-ahead measure increased by 0.1 percentage points to 2.6%, according to the survey.

“Expectations about year-ahead price increases for gas, food, cost of rent, college education, and medical care all declined,” it said. “Labor market expectations improved, with unemployment expectations and perceived job loss risk decreasing and job finding expectations increasing.”

However, the expectations for voluntary job quits reached the highest level since the start of the coronavirus pandemic, as households’ perceptions and expectations for current and future financial situations both improved, it added.

For the housing market, the median home price growth expectations increased by 0.3 percentage points to 1.4% in February, but still remaining far below the 12-month trailing average of 3.4%.

As the US Federal Reserve continues its policy of monetary tightening, its officials last week signaled more rate hikes to come at least for the first half of this year.

Fed Chair Jerome Powell said last Tuesday that if incoming macroeconomic data would indicate faster monetary tightening is needed, the US central bank would be prepared to increase the pace of interest rate hikes.

Consumer inflation in the US came in at 6.4% in January, recording the smallest 12-month increase since October 2021, while it marked a sharp decline from the 9.1% yearly gain in June. The data for February will be released Tuesday at 8.30 a.m. EDT.

However, the Fed’s preferred inflation indicator, the core personal consumption expenditures (PCE) price index, rose 4.7% annually in January, up from a 4.6% year-on-year gain in December. On a monthly basis, the core PCE price index rose 0.6% in January, up from a 0.4% monthly gain in December.

• inflation expectations
• US Federal Reserve