Consumers are “spontaneously” referencing higher prices at a rate never before witnessed, according to the University of Michigan’s consumer sentiment survey.
The final read on the headline gauge for May was essentially unchanged from the preliminary print (82.9 versus 82.8). Both the current conditions and expectations gauges were down considerably from April.
Richard Curtin, the survey’s chief economist, flagged “record proportions of consumers” reporting higher prices for all manner of discretionary purchases, “including homes, vehicles, and household durables.”
As Curtin put it, “the average change in May vastly exceeds all prior monthly changes.” The figure (below) is quite something.
“References to high home prices in evaluations of home buying conditions were made by 52% of all consumers, the highest proportion ever recorded; references to high vehicle prices were made by 26%, the highest since 1983, and mentions of high prices for household durables by 23%, the highest since 1982,” the survey noted.
Earlier this month, the preliminary version of the May vintage grabbed headlines for a remarkable jump in near-term inflation expectations. The year-ahead expected change in inflation was unrevised at 4.6% in the final read for this month, while the longer-term gauge ticked down to 3% from 3.1%.
Read more: Inflation Expectations Skyrocket, Knee-Capping Sentiment
Curtin called consumers’ expectations for higher prices “hardly surprising” and said any hit to discretionary spending would likely be “offset by the more than $2 trillion increase in savings in the past year as well as by improving job prospects.”
A record proportion of consumers in the survey project a decline in the unemployment rate over the next year.
On Friday, data for April showed core PCE jumping the most since 1992. The figure (below), plots core PCE with year-ahead inflation expectations from the Michigan survey.
As ever, it’s all about the interplay between expectations and reality, and the extent to which the former can shape the latter, which in turn feeds back into the former.
“The key issue is whether the timing of spending decisions will advance due to the expected price increases,” Curtin went on to remark Friday. “At present, the growth in inflationary psychology is unlikely, but it cannot be completely dismissed.”
No, it can’t.
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