U.S. consumers are becoming more confident that price pressures will ease considerably over the next 12 months, with a survey on Friday showing their one-year inflation expectations falling in January to the lowest level since the spring of 2021.
But the road to low inflation will be bumpy as other data on Friday showed import prices unexpectedly increasing in December after five straight monthly decreases, boosted by higher costs for natural gas and food. Overall inflation is retreating as the Federal Reserve’s aggressive interest rate increases cool demand, and bottlenecks in the supply chain ease.
“The Fed will be happy to see short-term expectations reverting back to more normal levels,” said Shannon Seery, an economist at Wells Fargo in New York. “That all supports views inflation is indeed slowing, but it’s going to take some time for it to get back to the 2% target that the Fed is looking for.”
Year-ahead inflation expectations dropped to a preliminary reading of 4.0% this month from 4.4% in December, the University of Michigan Surveys of Consumers showed. The fourth straight monthly decline pushed inflation expectations to the lowest reading since April 2021. Twelve-month inflation expectations remain well above the 2.3%-3.0% range seen in the two years prior to the COVID-19 pandemic.