Consumers’ inflation expectations improved in July amid plummeting gas prices and rising interest rates, according to a New York Federal Reserve survey released Monday.
Respondents expect the inflation rate to average 6.2 percent over the next year, a sharp drop from 6.8 percent in June’s survey. Expectations for the three-year inflation rate fell from 3.6 percent to 3.2 percent over the same period.
The decline is driven by improving consumer sentiment on gas prices. The July survey found that respondents expect gas prices to rise 1.5 percent over the next year, down from 5.6 percent the month prior.
The national gas price average is expected to fall below $4 per gallon this week for the first time since March, according to an analysis from GasBuddy, a precipitous drop from June when prices averaged $5 per gallon.
Consumers are hopeful that food price inflation will slow, too. Survey respondents expect food prices to rise 6.7 percent over the next year, down from 9.2 percent in June.
The survey also found that consumers expect home prices to rise 3.5 percent, down from 4.4 percent the previous month. The market has cooled down as record home prices and high mortgage rates keep prospective buyers away.
Those results come after the Federal Reserve hiked interest rates by about 2.25 percentage points to reduce consumer spending and get prices down. Chair Jerome Powell has signaled that more rate hikes are coming, indicating that prices aren’t falling fast enough to reach the board’s 2 percent inflation goal.
“My view is that similarly sized increases should be on the table until we see inflation declining in a consistent, meaningful and lasting way,” Fed Governor Michelle Bowman said over the weekend at an American Bankers Association event.
While the New York Fed survey showed drops in expected inflation, the 6.2 percent one-year figure is still higher than in March. One year ago, consumers expected annual inflation to rise by just 4.8 percent.