NY Fed Finds Stable Inflation Expectations in January, Despite Commodity Price Increases

The Federal Reserve Bank of New York's Center for Microeconomic Data released the January 2025 Survey of Consumer Expectations, revealing mostly stable inflation expectations at the short- and medium-term horizons. However, commodity price expectations rose across the board, raising concerns about potential impacts on consumer spending and business investment.

Inflation expectations remained unchanged at 3.0% at both the one- and three-year-ahead horizons, indicating that consumers' views on near-term inflation have not shifted significantly. This stability can be attributed to several factors, including the survey's measure of disagreement across respondents, which was unchanged at the three-year horizon, and median inflation uncertainty, which was also unchanged at the one-year horizon. Additionally, there were no significant changes in commodity price expectations for gas, food, medical care, education, and rent at these horizons.

However, median five-year-ahead inflation expectations rose by 0.3 percentage point to 3.0% in January, driven primarily by respondents with a high-school education or less. This increase was accompanied by a rise in the survey's measure of disagreement across respondents at the one- and five-year horizons, suggesting that there was more variation in inflation expectations among consumers at these longer horizons. Median inflation uncertainty also increased at the five-year horizon, indicating that consumers were more uncertain about future inflation outcomes at this longer horizon.

The rise in commodity price expectations may have contributed to the increase in longer-term inflation expectations. Year-ahead commodity price expectations rose significantly, with the expected price change for gas increasing by 0.6 percentage point to 2.6%, food by 0.6 percentage point to 4.6%, medical care by 1.0 percentage point to 6.8%, college by 0.2 percentage point to 5.9%, and rent by 0.5 percentage point to 6.0%.



The increase in commodity price expectations has several implications for the broader economy, consumer spending, and business investment. Higher commodity prices may lead to reduced consumer confidence and spending, as indicated by the decline in median household spending growth expectations in January 2025. This decrease in spending growth expectations could be attributed to the rising commodity prices and the associated uncertainty. Additionally, higher input costs could lead to reduced profit margins for businesses, potentially discouraging them from expanding their operations or investing in new projects.

However, the survey also found that median expected growth in household income increased by 0.2 percentage points to 3.0% in January 2025, suggesting that consumers remain optimistic about their income prospects. This optimism may help mitigate the impact of higher commodity prices on consumer spending. Furthermore, perceptions of credit access improved in January 2025, with the net share of households reporting it is easier to obtain credit increasing. This improved access to credit could help consumers and businesses manage the increased costs associated with higher commodity prices.

In conclusion, the New York Fed's Survey of Consumer Expectations found mostly stable inflation expectations at the short- and medium-term horizons, despite an increase in commodity price expectations. The rise in commodity prices may have contributed to the increase in longer-term inflation expectations and has several implications for the broader economy, consumer spending, and business investment. However, improved access to credit and optimistic income growth expectations may help mitigate these effects. As the economy continues to evolve, investors and policymakers should monitor inflation expectations and commodity price trends to make informed decisions.