The University of Michigan survey of consumers just released their montly update on inflation expectations. If only The Fed’s Janet Yellen was watching consumer inflation expectations because consumers expect more inflation than The Fed’s inflation target of 2%. Apparently, The Fed is having trouble whipping inflation above 2%.
The balance between QE and Treasury supply will begin to shift in July. The underlying bid it has provided for stocks and Treasuries will begin to fade.
This report tells why, and what to look for in the data and the markets. GO TO THE POST
Consumer inflation expectations remained at 2.6% for August, but the expectations for inflation down the road fell to 2.5%.
Of course, 2.6% inflation is higher than The Fed’s target inflation rate of 2%. All inflation measures of core prices (excluding home prices, education, healthcare, etc) are under 2%.
As I mentioned, home prices are left out of the core inflation calculation. But if home prices WERE included, for example, we could have substantially greater inflation since YoY home price growth ranges from 5.7% to 6.9%. Wage growth is only about 2.36 – 2.5%. This indicates that home prices are growing around 2.5x wage growth.
It is clear that consumers are pricing in non-core inflation into their forecasts, such as home prices, rent, food, healthcare, tuition, textbooks, childcare, etc.
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