The University of Michigan Consumer sentiment report (September – preliminary) showed a modest decline in inflation expectations and a recovery in the main index. According to analysts at Wells Fargo, the most remarkable aspect of the latest sentiment survey is that inflation expectations remain so well-anchored. They point out that after this week’s CPI surprise, Federal Reserve officials might be breathing a little easier.
“Coming after the upward surprise from August consumer inflation earlier this week, it’s remarkable that inflation expectations remain so well-anchored. Consumer’s expectations for inflation over the next year dropped to 4.6% from 4.8% in August, marking the lowest reading in twelve months. Longer-term expectations over the next 5-10 year horizon also inched down, now at a 14-month low of 2.8%. These readings are consistent with other measures of inflation expectations, like that from the Fed’s Survey of Consumer Expectations, and they suggest to at least some extent consumers are unfazed by the persistently-high level of inflation today.”
“The Fed will be glad to see that medium- to longer-term expectations remain well within the past decades range, or what it refers to as expectations being “unmoored.” As long as expectations remain low, it is one thing to stay the hand of faster rate hikes from the Fed.”
“The FOMC is thus likely to make note of expectations at next week’s meeting as one positive development in an otherwise stubborn inflation environment and grim economic backdrop.”