Consumers expect prices to cool — but the damage may already be done.

The red-hot inflation that has burned so many this year appears to be finally cooling down, from gas prices to housing costs. Consumer expectations.

A day before closely watched inflation data for August, the Federal Reserve Bank of New York’s Consumer Protection Survey showed that people are likely to reduce their own rate of inflation in the near term.

In a recent New York Fed study, researchers found:

• Expected average inflation in August was 5.7% over the next 12 months, down from 6.2% a month earlier.

• For the next three years, average inflation dropped from 3.2% to 2.8%.

• Growth in gas, grocery and house rent prices is predicted, while home price growth is down 1.4 percentage points to 2.1 percent. This is the lowest reading on forecast house price growth since July 2020. Survey participants in all regions shared their views, researchers noted.

Put the findings next to professional forecasters, and there’s a chorus predicting four decades of high inflation and deflation.

On Tuesday, the Bureau of Labor Statistics is scheduled to release the August consumer price index. According to economists reviewed by the Wall Street Journal, the index is expected to decrease by 0.1% per month.

In that case, inflation would be 7.9% year-on-year, down from 8.5% year-on-year growth in July CPI data. July numbers were cooler than forecasters predicted.

Hear from Ray Dalio at the Money Festival in New York on September 21st and September 22nd. The hedge fund pioneer has strong views on where the economy is headed.

Meanwhile, Modi Analytics chief economist Mark Zandi said domestic prices were set for a “correction”. Also, annual home price appreciation fell for the third consecutive month in July, CoreLogic noted.

On Monday, a gallon of gas cost an average of $3.71, according to AAA. That’s a drop from a week ago, a month ago and less than a dollar from a high of $5.01 in mid-June, AAA shows.

Although inflation is slowing, other numbers show damage to household finances and the stock market.

Americans’ real wealth fell 20.9% in the second quarter, according to MarketWatts, which adjusted for inflation in the new Federal Reserve household wealth index. The figure includes the size of bank accounts, but not stock market holdings.

In the first half of the year, investors were troubled by questions about how far the Fed would go to fight inflation by raising interest rates and risk tipping the economy into recession.

On Monday, the Dow Jones Industrial Average DJIA;
+ 0.73%,
S&P 500 SPX,
and Nasdaq Composite COMP,
+ 1.23%
All was improving in the early morning trading.

Other numbers show households’ financial stress is persistent. The share of “financially healthy” Americans will contract to less than one-third (31%) by 2022, down three percentage points from a year ago, according to the Financial Health Network.

Compared to recent reactions, fewer households are expected to be in debt at this point next year, New York Fed researchers said. And many people feel insecure about keeping their job or looking for a new one when they lose their current one.

But the chances of missing out on a subprime loan have increased in recent studies, he said. More than 12% said they were likely to miss a down payment in the next three months.

This echoes numbers from the early days of the pandemic. The highest reading since May 2020 was 12.2 percent, researchers noted.

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