Shoppers believe food prices will go down, but they will not be spending more

The latest Survey of Expectations (SCE) by the Federal Reserve Bank of New York shows inflation softening in the coming years, but consumer spending may tighten.

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. 

The latest SCE was conducted in December and shows the median inflation expectations declining one year (from 3.4% to 3.0%), three years (3.0% to 2.6%), and five years (2.7% to 2.5%) out. In other words, consumers believe inflation will cool off in the coming years.

The median inflation expectation at the one-year level was the lowest since January 2021. Most of those surveyed also believe the price of food will drop over the next 12 months, as the median year-ahead price changes for food decreased 0.3% to 5.0%.

However, shoppers are not ready to spend more following months of inflation hardship. The SCE shows the median expected growth in household income dropped 0.1% to 3% while the median household spending growth expectations declined by 0.2 percentage points to 5.0%. It is the lowest level recorded since September 2021. So consumers expect salaries to be relatively flat and will pull back on spending.

Additionally, the one-year expected earnings growth went down 0.2% to 2.5%, the lowest since April 2021.

Consumers also believe the unemployment rate will be lower in the coming months (decreased by 1.4 percentage points to 37.0%) and the risk of losing one’s job over the next 12 months is also lower (decreased by 0.2 percentage points to 13.4%).