Inflation Expectations Fell in January

Inflation expectations did something in January that they have not done in a long time. They declined.

A survey of households released Monday by the Federal Reserve Bank of New York indicated that consumers lowered their expectations for how much inflation will rise in the near-term and medium-term.

Expected inflation one year from now fell to 5.8 percent from six percent in December and November, the first decline since October 2020. On a three-year time horizon, expected inflation dropped to 3.5 percent from four percent, the largest decline in records going back to 2013.

The shift in expectations was especially pronounced among older consumers, who expect more inflation than their younger counterparts. Consumers over 59 said they expect inflation to run at 3.9 percent three years from now, down a full percentage point from a month ago. Consumers between 40 and 59 expected 3.7 percent, down from four percent. Younger consumers expect three percent inflation, down from 3.5 percent.