Consumer sentiment deteriorated in July, the preliminary read on the University of Michigan’s survey suggested, underscoring concerns about rising consumer prices.
The headline print was 80.8 (figure below), down from the final read of 85.5 in June and well below the 86.5 economists expected.
Both the current conditions and expectations gauges dropped.
The public is clearly aware that inflation is running hot. “Rather than job creation, halting and reversing an accelerating inflation rate has now become a top concern,” the survey said.
Consumer prices rose more than expected in June, data out this week showed, while producer prices remain elevated amid persistent supply chain bottlenecks and various disruptions. In testimony before the House and Senate, Jerome Powell conceded that inflation is higher than he expected, but nevertheless insisted that “transitory” remains the appropriate adjective.
“Spontaneous references to high prices for homes, vehicles, and household durables rose to its highest level in more than a half century,” the color accompanying the Michigan survey went on to say.
Year-ahead inflation expectations accelerated to 4.8%, up sharply from 4.2% in June. That’s the highest in 13 years (figure below).
And yet, the expected change in prices over the next 5- to ten years remained relatively subdued, at 2.9%, just a tick higher from June.
That mirrors the New York Fed’s survey, out earlier in the week. The spread between one-year expectations and consumers’ longer-term outlook is near the widest ever on the Michigan survey (figure below).
I suppose I’d just note that the surge in one-year expectations is really just becoming a kind of mark-to-market exercise for consumers, just as it was for the Fed, when the updated projections in the June SEP showed a sharp upward revision to the outlook for prices this year.
That longer-term expectations aren’t spiraling could be construed as evidence that the Fed retains some credibility as an inflation-fighting institution. Or it could just be that it takes more than a few months for longer-term expectations to change.
Although the Conference Board’s gauge is “catching up” to equities, the Michigan gauges continue to flounder (figure below).
That visual comes with the traditional caveat: It’s a so-called “chart crime,” but people like it.
Anyway, buy some stocks. They’re a good inflation hedge. And they never fall. Or haven’t you heard?
Of course, that assumes you can afford to buy stocks. As Ferris Bueller might put it, “Stocks are so choice. If you have the means, I highly recommend picking some up.”