New York Fed: Driven by oil prices, inflation expectations are rising sharply

New York Fed’s latest consumer survey shows that U.S. inflation expectations jumped noticeably in March, primarily driven by a surge in oil price expectations to a four-year high. Meanwhile, confidence in the labor market continues to deteriorate, and households’ financial outlooks are weakening in tandem.

The March 2026 consumer expectations survey released by the New York Fed on Monday indicates that one-year inflation expectations rose from 3.0% in February to 3.4%, an increase of 0.4 percentage points, matching the high point in April 2025. Three-year inflation expectations edged up by 0.1 percentage points to 3.1%, while five-year expectations remained steady at 3.0%.

This short-term inflation expectation spike is mainly driven by a significant rise in gasoline price expectations—respondents’ expectations for gasoline price increases over the next year soared by 5.3 percentage points to 9.4%, the highest level since March 2022.

The data was released just before Friday’s CPI report, making the timing sensitive for markets. The upward shift in inflation expectations, coupled with the worsening confidence in the labor market, complicates the Federal Reserve’s monetary policy outlook—on one hand, inflation pressures are reigniting, while on the other, concerns about the job market deepen, potentially fueling discussions of stagflation risks.

Oil price expectations surge, pushing up inflation expectations across multiple commodities

In this survey, the jump in gasoline price expectations was particularly prominent, serving as the core factor driving the overall short-term inflation outlook higher. Respondents’ expectations for gasoline price increases over the next year surged by 5.3 percentage points to 9.4%, the highest since March 2022.

Expectations for other commodities and living costs also generally increased, but to a lesser extent. Food price expectations rose by 0.7 percentage points to 6.0%; rent expectations increased by 1.2 percentage points to 7.1%; medical cost expectations remained unchanged at 9.7%; and college education cost expectations slightly declined by 0.1 percentage points to 9.0%.

Meanwhile, respondents’ uncertainty about inflation prospects is also rising. The survey shows that inflation uncertainty indicators across all time horizons increased, indicating growing divergence in consumers’ outlooks on future price movements.

Labor market confidence continues to decline

Alongside rising inflation expectations, pessimism about the labor market is also intensifying. The survey shows that respondents’ average probability expectation that the U.S. unemployment rate will rise over the next year increased by 3.6 percentage points to 43.5%, the highest since April 2025.

On the individual employment level, respondents’ perceived probability of losing a job in the next 12 months increased by 0.6 percentage points to 14.4%, though still below the 12-month rolling average of 14.6%. Notably, the willingness to voluntarily quit (expected resignation rate) surged by 2.4 percentage points to 18.3%.

On the other hand, confidence in re-employment after unemployment has improved, with the related probability expectation rising by 1.9 percentage points to 45.9%. This improvement is observed across different age, education, and income groups, but the figure remains below the 12-month rolling average of 47.5%.

Regarding wage expectations, respondents’ median expectation for income growth over the next year declined by 0.1 percentage points to 2.4%, which is below the 12-month rolling average of 2.6% and within the range (2.4% to 3.0%) since May 2021.

Household financial outlooks weaken across the board

Consumers’ assessments of their own financial situations are also deteriorating in tandem. The survey shows that the proportion of households reporting worse financial conditions compared to a year ago has increased, while those reporting improvements have decreased; expectations for future financial conditions are also pessimistic, with the proportion expecting worse financial situations over the next year reaching the highest since April 2025.

In terms of spending and debt, respondents’ median expectation for household expenditure growth over the next year rose slightly by 0.2 percentage points to 5.1%, while income growth expectations remain unchanged at 2.9%. The average probability of being unable to pay off minimum debt obligations within the next three months increased by 0.7 percentage points to 12.3%, especially among those over 60, with some college education, and with annual incomes below $50k.

In credit and asset expectations, perceptions of current credit access have improved slightly, but expectations for future credit availability have worsened somewhat. Respondents believe the average probability of the U.S. stock market rising over the next 12 months has decreased by 1.6 percentage points to 36.3%. Additionally, the median expectation for government debt growth over the next year increased by 0.6 percentage points to 9.8%, well above the 12-month rolling average of 7.4%.