Consumers anticipate that inflation rates will continue to subside gradually, as revealed in the most recent survey of consumer expectations conducted by the Federal Reserve Bank of New York. Despite a slight decrease in projected inflation, the median estimated inflation rate for the coming year remains at 3.6%, only marginally lower than the 3.7% estimate reported in the previous month’s survey. This consistent projection suggests that consumers’ expectations have remained stagnant within the mid-to-high-3% range since June.
On Tuesday morning, the Labor Department is set to release October’s consumer-price index, bringing more clarity to the inflation landscape. The previous month saw a year-over-year inflation rate of 3.7%, which remained unchanged from August and slightly surpassed the projected annualized rate of 3.6%. Economists surveyed by the Wall Street Journal predict that October’s year-over-year inflation rates may decrease further to 3.3%.
The New York Fed data indicates a gradual decline in inflation expectations. The survey data reveals that consumers have not anticipated year-ahead inflation rates within the 3% range since April 2021.
Interestingly, a separate consumer sentiment gauge conducted last week suggested that individuals expected inflation rates to rise to 4.4% in the coming year. The overall sentiment among consumers, as reflected in the University of Michigan polling, recently reached a six-month low.
Looking at spending patterns amidst this inflation landscape, it is believed that higher-income consumers continue to spend while lower-income consumers are experiencing budgetary strain, leading them to curtail their expenditure. This theory will be further explored as major retailers such as Walmart Inc. (WMT) and Target Corp. (TGT) report their earnings results this week.
Target CEO Brian Cornell shared earlier this month that people are purchasing fewer items, even within the food and beverage category. As the holiday season approaches, it remains to be seen how consumer behavior will shape the economy and individual businesses.
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