UMich Inflation Expectations Collapsed In December; Repuboicans Drive Surge In Sentiment

UMich inflation expectations (one year ahead) collapsed to 3.1% in preliminary December data after soaring to 4.5% in November. Medium-term inflation expectations also tumbled from 3.2% to 2.8%.

That is the lowest one-year inflation expectation since March 2021.

Source: Bloomberg

Who could have seen that coming?

Remember when UMich inflation expectations unexpectedly surged? Well, they are about to plunge or someone is lying pic.twitter.com/sjDSZqn5ki

— zerohedge (@zerohedge) November 28, 2023

Back to reality…

Consumer sentiment soared 13% in December, erasing all declines from the previous four months, primarily on the basis of improvements in the expected trajectory of inflation.

The headline jumped from 61.3 to 69.4 with current conditions spiking from 68.3 to 74.0 and expectations jumping from 56.8 to 66.0…

Source: Bloomberg

Sentiment is now about 39% above the all-time low measured in June of 2022 but still well below pre-pandemic levels.

All five index components rose this month, led by surges of over 24% for both the short and long-run outlook for business conditions.

Source: Bloomberg

There was a broad consensus of improved sentiment across age, income, education, geography, and political identification.

A growing share of consumers – about 14% – spontaneously mentioned the potential impact of next year’s elections. Sentiment for these consumers appears to incorporate expectations that the elections will likely yield results favorable to the economy.

The index of economic news heard reached its most favorable reading since 2021, supported by huge improvements among higherincome consumers, college-educated consumers, and Republicans.

So sentiment up (Fed won’t want animal spirits) but inflation expectations collapsing (Fed mission accomplished?)