Hey, simply again after taking the redeye residence from Futureproof Colorado, and getting my ft again beneath me. However I wished to briefly focus on tomorrow’s launch of the College of Michigan (UMich) long-term inflation expectations.
You in all probability know my ideas on each Inflation Expectations and Sentiment Surveys.
ICYMI, Inflation Expectations are a backwards wanting train within the Recency Impact. However even worse, they usually lag precise inflation by 6-12 months. As i defined in 2023:
“Jerome Powell and the Federal Reserve spend a number of time worrying about Inflation Expectations. They shouldn’t. Usually, Sentiment Surveys are ineffective — more often than not — the exception being on uncommon events on the extremes.
They aren’t merely lagging, backward-looking indicators, however as a substitute, inform us as to what the general public was experiencing about 3-6 months in the past. Usually, it takes folks just a few weeks or months to subconsciously incorporate broad, delicate modifications into their inside psychological fashions, and longer to consciously acknowledge these nuanced shifts.”
The chart offers the complete story away:
Future inflation expectations had been at their aboslute nadir simply earlier than the most important inflation spike in many years occurred. And when future inflation expectations had been at their highest ranges? We had been about to begin a 12 month collapse in CPI/PCE inflation measures.
So, largely ineffective — at the very least as a predictor of long term inflation charges. However they’re nice at telling you what the inflation of the previous 6 months was.
As to normal sentiment surveys, effectively the chart at high exhibiting political bias ought to make you notice how flimsy that is as a measure. Particularly when customers say one factor, however then do the precise reverse with their money.
The chart at high is from Financial institution of America; right here is their take:
The UMich survey exhibits substantial divergence by political affiliation (Exhibit 1). Lengthy-term inflation expectations have surged amongst Democrats and Independents, to five.1% and 4.4%, respectively, in current months. Nevertheless, expectations have cratered to 1.5% amongst Republicans. This stark divergence has led some analysts to dismiss the UMich survey, arguing that the outcomes are being pushed by political preferences slightly than an precise evaluation of inflation dynamics.
The entire above is earlier than we get to points prevalent in each mainstream and algorthmic social media…
Beforehand:
What Else Might be Driving Sentiment? (October 19, 2023)
More Inflation Expectations Silliness (July 5, 2023)
Is Partisanship Driving Consumer Sentiment? (August 9, 2022)
More Sentiment Nonsense (July 28, 2023)
The Trouble with Consumer Sentiment (July 8, 2022)
Sentiment versus Spending (XXX)
Is Partisanship Driving Consumer Sentiment? (August 9, 2022)
The Trouble with Consumer Sentiment (July 8, 2022)
Sentiment LOL (Could 17, 2022)
