MNI INTERVIEW: Consumer Price Expectations Have Turned - UMich

The Federal Reserve can take comfort that consumer inflation expectations have turned the corner, with a broad swath of U.S. households expecting inflation to move lower, the head of the University of Michigan's Survey of Consumers told MNI.

"There's a level of confidence that the inflation slowdown will continue and that confidence has increased quite a bit and it has continued through the first three months of the year," said survey director Joanne Hsu in an interview Thursday. Consumers "truly feel like we've turned a corner and that's over the last 4 months or so, not the last four weeks."

Americans expect prices will climb at a 2.9% rate over the next year, compared with the 3% expected earlier in the month. They see costs rising 2.8% over the next five to 10 years, the lowest since September and just above the range seen in the two years before the pandemic.

"This is good news in the sense that we are approaching pre pandemic levels and we're consistently moving in the right direction, although long run inflation expectations have been stable for quite some time."

FED MESSAGE

Hsu said monetary policymakers have had trouble getting that positive message across to consumers since the start of the year as inflation readings have proven hotter than expected. Still, Americans do not expect a resurgence in price pressures, she said. (See: MNI POLICY: Fed's Rate Cut Timeline Shaken By Inflation Bumps)

"The main thing that policymakers should see from this is that consumers don't really see any notable changes in economic conditions over the last three months - positive or negative," said Hsu, a former principal economist at the Fed board's division of research and statistics.

"Consumers do not expect inflation to come roaring back. Upward pressure on wages, front-loading consumption, we shouldn't be expecting that in the months ahead."

SENTIMENT

The University of Michigan consumer survey shows sentiment is up nearly 30% over the last four months, the fastest increase in 30 years. The headline sentiment index climbed to 79.4 in March from from 76.9 in February to 79.4 in March, with the March figure revised up from the 76.5 initially reported for the month.

Consumers’ views about their current personal finances rose to the highest level in over two years, while their present outlook for the economy improved to the best since July 2021.

Still, Hsu downplayed the monthly changes, saying sentiment has and is likely to remain in a fairly tight band, even as consumers have broadly positive views about their incomes.

"We have seen very little change over the last three months in sentiment. It climbed quite a bit at the end of 2023 but in these first three months consumers probably see the economy as stable and more or less in a holding pattern," she said. "Consumers haven't really seen a whole lot of evidence that things are changing their pace and it seems that a lot of consumers are reserving judgment, given the uncertain outcomes of the election later this year."