Overview of Inflation Expectations
Americans’ fear of inflation eased in May, as revealed by the latest Survey of Consumer Expectations from the New York Federal Reserve. The survey showed that the one-year inflation outlook dropped significantly to 3.2%, marking a 0.4 percentage point decrease from April. Additionally, inflation expectations for the three-year and five-year horizons also saw minor declines, offering a more optimistic view of future price increases. However, all three measures remain above the Federal Reserve’s target of 2% inflation annually.
Factors Behind the Decline in Inflation Outlook
The drop in inflation expectations coincided with U.S. President Donald Trump’s decision to ease the most severe of his tariff proposals. In early April, Trump had introduced universal 10% tariffs on all U.S. imports, but soon after, he opted for a 90-day negotiating window, which expires in July. This shift helped reduce inflationary fears among consumers, particularly in the aftermath of Trump’s initial tariff announcements, which had sparked widespread concern.
Impact of Trump’s Tariff Decisions
The easing of tariff threats has provided relief, with inflation figures trending down. According to National Economic Council Director Kevin Hassett, the inflation rate has decreased more than it has in the past four years, contradicting prior concerns that tariffs would lead to sustained price hikes. Hassett’s remarks on CNBC highlighted that despite increased tariff revenues, inflation was heading downward, which aligns with the administration’s narrative on tariff-induced inflation.
Survey Findings on Consumer Prices
While overall inflation expectations dropped, respondents in the Fed’s survey indicated an expectation that food prices would rise by 5.5% in the next year, a notable increase from the previous month. Gas price increases were expected to ease, with a forecast of 2.7%, down 0.8 percentage point. Price hikes for medical care, college education, and rent were also expected to moderate, reflecting a broader trend of decreasing inflationary pressures across various sectors.
Positive Developments in Employment and Debt Payments
The survey also revealed improvements in consumer sentiment regarding employment and debt. The percentage of people expecting to lose their job in the next 12 months decreased to 14.8%, while the likelihood of missing a minimum debt payment in the next three months fell to 13.4%, its lowest since January. Additionally, there was a slight increase in optimism regarding the stock market, with 36.3% of respondents expecting the market to rise within the next year, up 0.6 percentage point from the previous month.
