Inflation Outlook Rises, Fueled by Expected Increases in Housing Costs, New York Fed Survey Shows

Higher Inflation Expectations

Housing Costs and Inflation Projections

Respondents to the survey indicated they expect median home price growth of 3.3% over the next year, the highest reading since July 2022. Expected increases in housing prices are particularly concerning for policymakers, who anticipated shelter costs to ease this year. Alongside higher home costs, respondents see rents rising 9.1%, up 0.4 percentage points from the previous month.

Broader Inflationary Pressures

Inflation pressures are expected to stem from a variety of sources. Consumers see medical care costs rising 8.7% over the next year, up 0.6 percentage points from March. They expect food prices to increase by 5.3%, gasoline to rise by 4.8%, and college education costs to climb by 9%, a 2.5 percentage point surge. All these readings are well above the Fed’s 2% goal, reflecting the persistent nature of inflation this year after a significant disinflationary trend in 2023.

Employment and Economic Sentiment

Employment expectations in the survey were mixed. Unemployment is expected to rise, but the perceived probability of losing one’s job declined. However, the mobility outlook decreased, with only 50.9% expecting to find a job quickly after losing their current job, the lowest reading since April 2021.

Fed's Response and Economic Outlook

Fed officials at their most recent meeting maintained current interest rates and stated they need more compelling evidence that inflation is moving back to the 2% goal before making any cuts. “Policymakers continue to look for additional evidence that inflation is going to return to our 2% target, and until we have that I think it is appropriate to keep the policy rate in restrictive territory,” said Fed Vice Chair Philip Jefferson.

The survey's release comes just ahead of the closely watched Labor Department report on the consumer price index, due Wednesday. Economists surveyed by Dow Jones expect the all-items CPI to show a 3.4% increase for April from the prior year, down 0.1 percentage points from March. Core inflation, excluding food and energy, is projected to run at a 3.6% 12-month rate.