The Average Consumer Didn't Expect February's Inflation Until The End Of The Year — Is This A Win For The Fed?

Consumer expectations for short-term inflation are improving, according to a new Fed survey conducted in February.

Median inflation expectations for the one-year-ahead horizon dropped to an average of 4.2% in February, from 5% in the previous month.

The 0.8% drop marks a quick improvement in consumer views on the future of inflation in the country.

The median inflation expectations for the three-year and five-year ahead marks are 2.7% and 2.6%, respectively.

What’s Driving Disinflation? On Tuesday, the Labor Department released the latest data on consumer price increase (CPI) for February, which marked a 6% increase from the previous year, coming down from 6.4% registered in January.

On a month-over-month basis, the CPI increased by 0.4%.

Reaching 6% yearly inflation in February can be seen as a win for the Fed, given that the average consumer didn't expect to reach this mark until the end of the year, based on monthly consumer surveys by the New York Fed.

These consumers were expecting the 6% mark to be reached in November 2023 and remain there at least until February 2024. If inflation continues with the current trend, prices by the end of the year will be lower than expected.

While prices in the category of "services excluding food and energy" have continued to rise on a consistent basis, specific sectors are driving the disinflationary trend, according to the latest CPI report. These include energy (electricity and gas utilities, as well as gasoline and fuel oil). Cars (used and new), medical care, apparel and food at home are also driving down the general trend.

Certain sectors, such as gasoline and used cars, even show deflation, which is a straight drop in prices when compared to the previous year, as opposed to disinflation which is a drop in the rate of inflation.

Egg prices, which have been soaring above median increases since the outbreak of the latest strain of avian flu, dropped 6.7% from the previous month: the first decrease in five months.

One-year inflation in the U.S. is improving at a better rate than other key areas of the world. Inflation in the Eurozone is at 8.5%, though it's showing some signs of easing. In the U.K. inflation is at 10.1%.

Brazil, Japan, Saudi Arabia, China, Taiwan and South Korea all show inflation rates below U.S. numbers.

Photo by Joshua Rawson-Harris on Unsplash