UMich Inflation Exp Slows, Sentiment Hits Highest Since 2021

After soaring in October and November, and crashing back to earth in December, consensus estimates for UMich inflation expectations in January data were basically unchanged from December, but declined more than expected in the preliminary data. Today's final print saw 1Y hld at 2.9% and 5-1Y Inflation expectations rise very modestly from prelim 2.8% to final 2.9%...

Source: Bloomberg

This lack of fear of inflation sent the sentiment indicators soaring 9.3pts to 79.0 (up from 78.8 prelim), the biggest monthly advance since 2005.

The share of consumers spontaneously mentioning prices of food and gasoline declined substantially this month as well. Meanwhile, concerns about high home prices remain unabated.

The current conditions gauge rose 8.6pts to 81.9, but was down from the 83.3 prelim print, and a measure of expectations climbed to 77.1, extending gains from the prelim 75.9 print. Both were the highest since 2021.

Source: Bloomberg

Every sub-index was higher on the month...

Source: Bloomberg

“After reserving judgment last fall about whether the slowdown in inflation would persist, consumers now feel assured that inflation will continue to soften,” Joanne Hsu, director of the survey, said in a statement.

Buying Conditions rose for all cohorts (but were down from the prelim levels)...

Source: Bloomberg

Democrats' confidence continued to surge but Republicans' sentiment soured...

Source: Bloomberg

Stock market growth has generally provided some support to sentiment, particularly for consumers with larger portfolio holdings; this group posted a particularly large improvement in views this month. However, recent stock market trends are unlikely to be the dominant force behind the historically large and consensus gains in sentiment seen these past December and January.

As a comparison, the last time that stock markets reached historic highs, in October and November of 2021, sentiment edged down. This month, about 13% of consumers spontaneously mentioned stock markets during the interview, down from 16% a year ago. Consumers mentioning stock markets did report relatively higher levels of sentiment, but this group was not large enough to explain why sentiment soared as much as it did these past two months.

All sounds a bit self-fulfilling to us...