Short- and medium-term inflation expectations among American consumers rose significantly in June.
According to the New York Fed's Survey of Consumer Expectations released on Tuesday, the one-year inflation expectation climbed to 3.7% in June, the highest level since September 2023 and up from 3.5% in May. The three-year expectation also increased to 3.3%, marking a new high since June 2022. In contrast, the five-year expectation remained unchanged at 3.0%, indicating that long-term inflation anchoring remains relatively stable.
However, in contrast to the rising inflation expectations, American households showed improved confidence regarding their personal financial situations, the job market, and future stock market performance, suggesting consumers still perceive the overall economy as resilient.
Inflation Expectations Show Clear Divergence: Gasoline Cools While Healthcare and Rent Drive Increases
Looking at specific categories, price expectations showed significant divergence. Gasoline prices are expected to rise by only 1.5% over the next year, the lowest level since mid-2022. Food price expectations improved slightly, with an anticipated increase of 5.0%.
However, expectations for increases in medical care costs and rent rose notably, with projected rises of 9.4% and 8.3% respectively, becoming the primary factors driving the overall inflation expectations higher. Additionally, expectations for college education costs remained elevated at an anticipated 5.7% increase.
The New York Fed noted that the marked strengthening in expectations for medical care and rent cost increases is the core driver behind the rise in near- and medium-term inflation expectations. These two expense categories represent significant portions of American household budgets, and their persistently rising expectations could create long-term pressure on consumers' actual cost of living, complicating the outlook for inflation's return to target levels.
Labor Market Confidence Improves, But Quit Willingness Hits Near Three-Year Low
The survey also indicated that consumers' overall assessment of the job market has turned more optimistic. Respondents' expectations for the probability of future unemployment declined, while the perceived likelihood of finding a new job within three months if unemployed increased, reflecting a greater sense of job security.
However, consumers' willingness to voluntarily leave their jobs continued to decline, dropping to its lowest level since July 2023. This metric is often viewed as a key gauge of labor market confidence, and its decline suggests that, although the employment environment remains robust, workers' willingness to change jobs voluntarily has noticeably weakened, indicating some moderation in market dynamism.
This trend aligns with the previously released US non-farm payroll data for June. That data showed the unemployment rate fell to 4.2%, but job additions slowed compared to prior months, indicating the job market remains resilient while also gradually cooling, overall in a state of moderate adjustment.
Household Financial Confidence Rebounds, Stock Market Optimism Reaches Multi-Year High
Concurrently, American households showed a pickup in optimism regarding their personal financial situations. The proportion of households believing their current financial situation is better than a year ago increased, and expectations for their financial situation a year from now also improved further. Consumers' expectations for income growth rose to 2.8%, the highest level since March 2025.
Furthermore, consumer optimism about the US stock market continued to build. The average perceived probability of stock prices rising over the next year climbed to its highest level since April 2021, showing that household risk appetite remains elevated and confidence in the economic outlook has not significantly weakened.
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