In December, the outlook for near-term inflation among US consumers saw a notable decline, reaching its lowest point in three years, as reported by the New York Federal Reserve Bank on Monday.
Projections indicate a 3% inflation rate a year from now, marking the lowest since January 2021 and down from the previous 3.4% forecast in November, according to the latest consumer expectations survey by the regional Fed.
Survey responses revealed an anticipation of 2.6% inflation in three years, down from November's 3%. The five-year forecast for price pressure also decreased to 2.5%, compared to 2.7% in November.
Notably, respondents expected an increase in education spending in December compared to November, while projections for food and rent hikes decreased.
Gasoline price growth forecasts for the next year held steady at 4.5% in December, and expectations for home prices remained at 3%.
The decline in inflation expectations aligns with the consensus in financial markets and among US Federal Reserve policymakers, suggesting a continued easing of inflation pressures toward the central bank's 2% target.
Fed members emphasize the significant impact of inflation expectations on real price pressures, and the recorded inflation rate in December reinforces the expectation of a continued decline.
The alleviation of price pressures allowed the Fed to confidently announce the end of the aggressive interest rate hike policy initiated almost two years ago, intensifying after the inflation peak in the summer of 2022.
During the December 12-13 meeting, Fed members even discussed the possibility of rate cuts in 2024, heightening market expectations for potential easing at the next meeting on March 19-20.
The New York Fed survey also indicated increased expectations for slow growth in household income and spending. It is worth noting that the latter figure reached 5% in December, marking the least favorable result since September 2021.
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