July 15 Reuters U.S. consumers tempered their inflation expectations in July alongside a sharp drop in gasoline prices over the past month, a development likely to be welcomed by Federal Reserve officials worried that expectations for high inflation could become embedded and complicate their task of reining in price increases.

The University of Michigan39;s preliminary survey of consumers for July published on Friday showed consumers see inflation running at 2.8 over a fiveyear horizon, the lowest in a year and down from 3.1 in June. Their oneyear outlook for price increases moderated to 5.2 from 5.3 a month earlier and was the lowest since February.

The survey39;s elevated reading of consumer inflation expectations in June39;s preliminary survey was a factor in Fed officials39; decision to lift interest rates last month by threequarters of a percentage point rather than by just a half point.

The Fed is expected to lift rates again this month by at least the same margin as in June with key measures of inflation still running at fourdecade highs.Wednesday39;s higherthanexpected reading of the Consumer Price Index has fueled discussion over whether a larger 1 percentage point hike is warranted.

Friday39;s University of Michigan report, however, was the second piece of welcome news for the Fed at least on the longerterm inflation expectations front. On Monday, the New York Fed39;s Survey of Consumer Expectations showed consumers39; threeyear expectation slid to the…