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Three days before the latest CPI reading, which showed tentative signs that inflation may be cooling, a monthly report from the Federal Reserve Bank of New York showed rising optimism among Americans about the short-term inflation outlook. According to the latest Survey of Consumer Expectations, Americans’ short-term inflation expectations declined for the third consecutive month in December, while mid-term expectations held steady compared to the November report.
In December, the median expected inflation rate one year ahead was 5.0 percent, down from a peak of 6.8 percent in June. Looking three years ahead, the median expected inflation rate was 3.0 percent in December, down from 3.9 percent in May but higher than the 2.8 percent expected by consumers in August. The latest inflation reading, which was in line with expectations, is also consistent with Americans’ expectations. While there is still a lot of ground to cover to bring inflation down from 6.5 percent to 5.0 percent over the coming year, it needs to be noted that prices 12 months from now will be measured against today’s elevated prices, making lower readings very likely as the year progresses.
This chart shows the median expected inflation rate one year and three years ahead according to U.S. consumers.
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