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US Consumers’ Inflation Expectations Drop Sharply in May as Sentiment Improves

Moderating inflation fears alongside stronger household sentiment bolster forecasts that the Fed will keep rates unchanged in mid-June

People shop at a grocery store in Brooklyn on May 13, 2025 in New York City.
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The U.S. flag flies outside The Federal Reserve Bank of New York in New York City, U.S., October 12, 2021. REUTERS/Brendan McDermid/ File Photo

Overview

  • Americans’ year-ahead inflation expectations fell by 0.4 percentage point to 3.2% in May, the largest monthly drop since November 2022.
  • The moderation in expectations unfolded despite ongoing uncertainty over the Trump administration’s shifting import tariffs.
  • Outlooks for inflation three and five years ahead likewise eased to 3.0% and 2.6%, respectively.
  • Consumers foresee food prices rising 5.5% over the next year, the highest rate since October 2023.
  • Households reported improved financial conditions, including better credit access and lower odds of missing debt payments, and stronger job security perceptions.