UMich: Sentiment Deteriorates As Inflation Concerns Re-emerge

Preliminary University of Michigan consumer sentiment survey for October showed a sharp uptick in near-term inflation expectations alongside a deterioration in confidence and expectations.

• 12-month ahead inflation expectations hit a 5-month high 3.8% (up from 3.2% prior, vs 3.2% expected), while 5-10 year expectations rose to 3.0% (from 2.8% prior, and equal to Jun-Aug levels).
• Consumer sentiment fell to 63.0 (from 68.1 prior and 67.0 expected), with current conditions down 4.7pp to 66.7 (vs 70.3 expected) and expectations off 5.3pp to 60.7 (vs 65.7 expected). All of those were 5-month lows.
• Per the UMichigan release, the rise in inflation expectations and the drop in sentiment are unsurprisingly linked:
• "After stabilizing earlier this year, concerns about inflation have grown again. These concerns underpin the sharp 15% deterioration in consumers’ assessments of their personal finances in this month. About 49% of consumers reported that high prices are eroding their living standards, up substantially from 39% last month and matching the all-time high last recorded in July 2022. Consumers pointed specifically to prices of food and groceries (highest share in over a year) as well as gas and fuel (highest in 2023)."
• The limited rise in longer-term expectations means this report will probably have little impact on the Fed's view of the public's inflation expectations more broadly, with the 1Y jump arguably attributable to short-term gas price fluctuations among other factors noted above. That said, the FOMC will be mindful of the apparent stalling out of progress in inflation expectations, and of any further upticks, as it assesses whether overall expectations remain well-anchored enough to bring the tightening cycle to an end.