American households became increasingly concerned about their financial situation in May, with the proportion reporting deteriorating conditions reaching its highest level in nearly four years, according to the latest survey from the Federal Reserve Bank of New York.
The central bank's monthly Survey of Consumer Expectations, released on Monday (Tuesday AEST), showed that while inflation expectations remained largely stable, perceptions of current and future financial well-being continued to weaken.
The report noted: “Perceptions about households’ current financial situation compared to a year ago deteriorated, with a larger share of households reporting a worse financial situation, marking the highest reading since January 2023 ... The net share of households expecting a better versus worse financial situation in one year is at its lowest level since October 2022.”
The survey was conducted against a backdrop of rising concern over the inflationary consequences of the conflict involving Iran, which has pushed energy prices higher and raised questions about the outlook for inflation.
Several Federal Reserve policymakers have recently expressed concern that a prolonged conflict could lift inflation expectations among consumers and businesses, potentially creating more persistent inflationary pressures than those typically associated with temporary supply disruptions.
Despite those concerns, the survey indicated that consumer inflation expectations remained relatively stable.
One-year inflation expectations edged down by 0.1 percentage point to 3.5%.
Expectations at the three-year and five-year horizons were unchanged at 3.1% and 3.0%, respectively.
Consumers also revised some of their price forecasts. Year-ahead expectations for gas price growth declined by 0.1 percentage point to 5.0%, while forecasts for food prices increased by 0.6 percentage point to 5.8%.
Rent expectations rose sharply, climbing 1.4 percentage points to 7.4%.
Households also anticipated slower spending growth over the next year, with expected household spending growth falling to 5.0%, down 0.4 percentage points from April.
Investors and policymakers will receive another important inflation signal on Wednesday (Thursday AEST) when the U.S. Bureau of Labor Statistics (BLS) releases the consumer price index (CPI) for May.
Market forecasts suggest headline inflation accelerated to 4.2%, while core inflation, which excludes food and energy prices, is expected to rise to 2.9%. The Federal Reserve's long-term inflation target remains 2%.
Attention is also turning to the Federal Open Market Committee's next policy decision on 17 June.
According to the CME Group FedWatch Tool, markets are assigning a 98.1% probability that policymakers will leave interest rates unchanged at the upcoming meeting.
However, expectations have increased that the Federal Reserve could raise rates before the end of the year if inflation pressures persist.
