Consumer sentiment fell last month while expectations of inflation among the general populace rose, according to a University of Michigan survey that is closely followed by the Federal Reserve.
All components of the index fell for the month, with the buying conditions for durables falling the most with a decline of 21 percent due to high prices and interest rates.
The fall in consumer sentiment was observed irrespective of age, income, political affiliation, geography, and education, potentially signaling that the recent improvement seen in sentiment was only tentative.
With regard to inflation, “the median expected year-ahead inflation rate was 5.1 percent, up from 5.0 percent last month. Long-run inflation expectations, currently at 3.0 percent, have remained in the narrow (albeit elevated) 2.9-3.1 percent range for 15 of the last 16 months,” survey director Joanne Hsu said in the results.
The Michigan University survey results come as latest government data showed the 12-month Consumer Price Index (CPI) rising by 7.7 percent in October, down from 8.2 percent in September and this year’s peak of 9.1 percent in June.
In a statement to The Epoch Times, Greg McBride, chief financial analyst at Bankrate, warned that though the October CPI came in below investor expectations, it does not mean that the fight against inflationary pressure is over.
Fed Policy
The consumer expectation survey of Michigan University is something that the Federal Reserve keeps an eye on and influences their decisions regarding interest rates.During a press conference in June that followed a hike in interest rates by 0.75 percentage points, Fed Chair Jerome Powell admitted that the Michigan survey pushed the central bank to increase the interest hike from 0.5 percent to 0.75 percent.
“However, those views could change if inflation expectations reach the elevated levels [of] earlier this year.”
At the beginning of 2022, the Fed was maintaining its benchmark interest rate at 0.25 percent. This has been pushed up to a range of 3.75 to 4 percent at present.
“Doing more means a higher probability of a recession, and if [it] happens, in all likelihood a deeper recession.”