US Long-Term Inflation Expectations Hit 12-Year High

The University of Michigan has released a study indicating that the US inflation expectation index for the next five to 30 years has breached a 12-year upper mark of 3.2%.

In related news, the consumer sentiment index fell to 63.5, contrasted to a pre-pandemic high of 300. These two measures starkly present the deterioration of consumer realities.

Although most analysts agree that inflation is under control and will continue to be reined in, the reality is that bringing it all the way to the US Federal Reserve’s desired 2% mark will not be easy. It will likely take years, according to many economists.

Meanwhile, inflation is eating away at consumer purchasing power. In April, the US Consumer Price Index climbed by a seasonally adjusted 0.4% and rose 4.9% over the past year. Core inflation climbed 0.4%, which was a 5.5% hike over the year. The loss of purchasing power of the US dollar has been 14% since 2019 and 35% since 2008.

Some economists take a glass-half-empty view and are saying that many developed economies are demonstrating stagflation, which is defined as persistently high inflation combined with high unemployment and stagnant demand. On this front however, strong job growth in the US is its saving grace.

Negative consumer sentiment data complicates the inflation picture as it points to deterioration in spending, even as inflation expectations increase.

April’s declining consumer sentiment was borne out by consumers showing more caution on big-ticket expenditures. Indeed, the sub-indexes on plans to buy vehicles, appliances and housing all dropped for the month.