NY Fed: Inflation Expectations Rise Despite Falling Gas Prices

What drove the divergence? Consumers now expect rent and medical care to cost more over the next year. Rent expectations rose 0.9 points. Medical care expectations climbed 0.5 points, according to the survey. Food and college education were seen getting cheaper – food by 0.8 points and college by 2.3 points. The stickier categories pushed headline expectations higher. The NY Fed also noted that “median inflation uncertainty” decreased at all horizons, meaning households are more confident in their higher forecasts.

AAA said Thursday that the national average gas price was $3.838 on July 2, down from $3.918 a week earlier and $4.290 a month earlier. This spring’s peak was $4.56 on May 12. “The downward trend since late May is welcome news during the busy summer driving season,” AAA said in a press release.

For markets, higher consumer inflation expectations feed into actual pricing behavior and wage demands. If households expect 3.7 percent inflation over the coming year, they are less likely to accept a 3 percent raise. Companies have more cover to raise prices. That dynamic tends to keep core services inflation sticky. Long‑term yields have already repriced higher this month. A further upward drift in inflation expectations would add to that pressure, support the dollar, and keep gold under a heavy real‑yield headwind.

The June CPI report is due July 11. The consensus expects a 0.1 percent month‑over‑month decline in headline inflation, with core holding at 0.2 percent. Until rent and medical care inflation actually moderate, the NY Fed survey suggests cheaper gas alone won’t calm consumers’ inflation fears.