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Post: : Consumers expect prices to keeping cooling — but the damage may have already been done

The red-hot price inflation that’s burned so many people this year appears to be finally cooling down on everything from gas prices to housing costs, and consumers are finally starting to see light at the end of the inflation tunnel, according to a new look at consumer expectations.

A day before closely-watched data comes on August’s inflation rates, the Federal Reserve Bank of New York’s consumer expectation survey shows that people keep toning down their own inflation rate predictions for the near future.

In the latest New York Fed survey, researchers found:

• Median inflation expectations in August were 5.7% for the coming 12 months, down from 6.2% a month earlier.

• For the coming three years, median inflation expectations dropped to 2.8% from 3.2%

• Predicted cost growth for gas, groceries and rent moderated, while expected home price growth dropped by 1.4 percentage points to 2.1%. That’s the lowest read on predicted home price growth since July 2020. Survey participants across all regions shared the view, researchers noted.

Put the findings next to professional forecasters, and there’s an emerging chorus predicting cooling prices and inflation that’s easing off four-decade highs.

On Tuesday, the Bureau of Labor Statistics is scheduled to release August’s consumer price index. The index is expected to show prices declining 0.1% month to month, according to economists polled by the Wall Street Journal.

If that’s how it shakes out, inflation’s year-over-year growth would be 7.9%, down from the 8.5% year-over-year growth seen during the July CPI data. July’s numbers were cooler than forecaster predictions.

Hear from Ray Dalio at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.

Meanwhile, home prices are poised for a “correction” as mortgage rates go higher and buyers pull back, according to Mark Zandi, chief economist at Moody’s Analytics. Also, annual home price appreciation slowed in July for the third consecutive month, CoreLogic noted.

On Monday, a gallon of gas cost an average $3.71, according to AAA. That’s a price decline from a week ago, a month ago and more than a dollar below the all-time high of $5.01 in mid-June, AAA shows.

Even if inflation is easing, other numbers show its damage to household finances and stock markets as well.

Americans’ real wealth dropped by a record 20.9% in the second quarter, according to a MarketWatch inflation adjustment to new Federal Reserve data on household wealth. The figure accounts for the size of bank accounts, but also stock market holdings.

During the first half of the year, investors have been rattled by questions on how far the Fed will go to fight inflation by raising interest rates — and whether that will stumble the economy into recession.

On Monday, the Dow Jones Industrial Average
S&P 500

and Nasdaq Composite

were all gaining ground by late morning trading.

Other numbers show the money stress households are enduring. The share of “financially healthy” Americans contracted to less than one-third (31%) in 2022, down three percentage points from a year ago, according to the Financial Health Network.

Compared to the most recent responses, fewer households expected to be worse off at this point next year, New York Fed researchers said. And many people sounded increasingly confident about holding onto their job or finding a new one in the event of losing their current job.

But the perceived chances of missing a minimum debt payment increased in the most recent survey, they noted. Just over 12% said there was a chance they’d miss a minimum payment in the upcoming three months.

That echoes numbers from the pandemic’s early days. The 12.2% was the highest reading since May 2020, researchers noted.

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