Hey, simply again after taking the redeye house from Futureproof Colorado, and getting my ft again below me. However I wished to briefly talk about 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 quite a lot 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 an alternative, inform us as to what the general public was experiencing about 3-6 months in the past. Sometimes, it takes folks a number of weeks or months to subconsciously incorporate broad, refined modifications into their inner psychological fashions, and longer to consciously acknowledge these nuanced shifts.”
The chart provides the whole 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 start out a 12 month collapse in CPI/PCE inflation measures.
So, principally ineffective — at the very least as a predictor of long run inflation charges. However they’re nice at telling you what the inflation of the previous 6 months was.
As to basic sentiment surveys, effectively the chart at high displaying political bias ought to make you understand how flimsy that is as a measure. Particularly when shoppers say one factor, however then do the precise reverse with their cash.
The chart at high is from Financial institution of America; right here is their take:
The UMich survey reveals 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 relatively than an precise evaluation of inflation dynamics.
All the above is earlier than we get to points prevalent in each mainstream and algorthmic social media…
Beforehand:
What Else May be Driving Sentiment? (October 19, 2023)
Extra Inflation Expectations Silliness (July 5, 2023)
Is Partisanship Driving Shopper Sentiment? (August 9, 2022)
Extra Sentiment Nonsense (July 28, 2023)
The Bother with Shopper Sentiment (July 8, 2022)
Sentiment versus Spending (XXX)
Is Partisanship Driving Shopper Sentiment? (August 9, 2022)
The Bother with Shopper Sentiment (July 8, 2022)
Sentiment LOL (Might 17, 2022)
