Sentiment Steady as Inflation Expectations Cool

Economics Group of Wells Fargo Bank, N.A. Summary Consumer sentiment did not move materially in August. Consumers see prices broadly heading lower even as they expect interest rates to continue to rise. One factor that could disrupt the expectations around prices would be if the recent surge in gas prices does not reverse course. Inflation Expectations Lower, but Watch Gas Prices The most interesting development in today’s University of Michigan survey on consumer sentiment was the fact that inflation expectations edged lower. Year-ahead inflation expectations came down from 3.4% last month to 3.3% this month. The report noted how that is still north of the 2.3%-3.0% range in the two years prior to the pandemic. Sentiment itself was more or less unchanged in the month coming in at 71.2, and current conditions registered 77.4, a bit lower than the 76.6 in July but not a meaningful enough move to materially influence August activity. This particular gauge of the consumer’s mindset is particularly vulnerable to inflation in general and gas prices in particular. Gasoline prices spiked at the end of July, and according to the American Automobile Association, the national average of gas prices rose yesterday to $3.84/gallon. That is technically down from the $3.99 price for the same date in 2022, but it also represents the highest daily average price so far in 2023. Some of the recent rise has to do with extra hot weather, but we will be watching prices at the pump as a potential headwind for sentiment. READ FULL ARTICLE >>