Minneapolis (CNN Business) Americans are expecting inflation to fall sharply in both the short and long run, according to new data from the Federal Reserve Bank of New York.
In August, the median expectations for one- and three-year inflation dropped to 5.7% and 2.8%, respectively, down from 6.2% and 3.2% in July, according to the NY Fed's Survey of Consumer Expectations for August, released Monday morning.
For much of this year, inflation has clocked in at levels not seen in four decades. As of July, consumer prices were up 8.5% from the year before.
The decline comes amid a continued slump in gas prices. The national average cost for a gallon of gas has dropped to $3.71, down significantly from its June peak of more than $5.
The survey — which measures consumers' expectations for overall inflation as well as prices for food, gas, housing and education — is one of three key inflation-related gauges to be released this week. It will be followed by the Consumer Price Index on Tuesday and the Producer Price Index on Wednesday.
The central bank will be reviewing this and other data closely as it weighs the extent of another rate hike at its monetary policymaking meeting on September 20 and 21 in its battle to bring down historic inflation.
The NY Fed survey is likely welcome news for the Federal Reserve, since higher inflation expectations can lead to more workers bargaining for higher wages to counteract losses in purchasing power, resulting in a wage-price spiral, research has shown.
"The Fed will view the August decline in inflation expectations as encouraging, but far from enough to convince them to end their interest rates hikes," Mark Zandi, senior economist for Moody's Analytics, told CNN Business.
The easing of expectations serves as a reflection of what people are seeing in their day-to-day lives — that prices are falling, said Dean Baker, a macroeconomist and co-founder of the Center for Economic and Policy Research.
Consumers' expectations for a slower pace of inflation extended across most areas of spending, including gas, food, rent and home prices. Expectations for education costs held steady and ticked up slightly for medical costs.
The report also showed that consumers felt optimistic last month about their future household income and financial situation, with lower expectations for the probability of losing their job and improved expectations for spending growth, stock prices and savings interest.
CNN