An interesting element of UMich.......>

US DATA REACT: An interesting element of UMich preliminary consumer sentiment

data for May (which came in at 73.7 vs 71.8 April and 68.0 estimate) was the

rise in inflation expectations: median 12-month at 3.0% (vs 2.1% in April) which

is the joint-highest since 2014, and median 5-10 yr at 2.6% (vs 2.5% in April).

- Our policy team put this out on May 6, citing Cleveland Fed economist Ed

Knotek on daily Fed surveys showing rising inflation expectations - which may be

counter-intuitive given the collapse in the economy: "Fed survey results

indicate consumers expect prices to surge amid Covid-19, reassuring policymakers

about the risk of deflation taking hold...Supply-chain disruptions that have

pushed up food prices likely account for some of the expectation for rising

prices, he said. Lower gasoline prices are also less visible for people confined

to their homes. Research also suggests that when consumers are pessimistic about

the future, they tend to think unemployment will be high, growth will be low and

inflation high."

- So, no sign yet of a self-reinforcing disinflationary spiral which may have

concerned Fed policymakers.