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US April Consumer Sentiment Data Point to Inflation Concerns

by Jay Brahach | April 16, 2021

The University of Michigan’s preliminary consumer sentiment index for April, released this morning, increased by 1.6 percentage points over the previous month, measuring in at 86.5.

Although the index reflects a more positive consumer assessment of economic conditions in the US, it missed expectations by 2.4 percentage points.

The reason for this looks to be an unchanged outlook for the Consumer Expectations component, even though the other components of the index have seen large gains.

The trade-weighted dollar index (DXY) increased by 0.04 percentage points in the immediate aftermath of this release, but quickly surrendered its gains, and was down about 0.15% on the session when this report was published.

In general, the report reads positively. The Current Economic Conditions index increased by 4.2 percentage points from March, with consumers citing stimulus spending, a low interest rate environment, and a robust vaccine rollout plans as contributing factors. Taking these factors into account, the Current Sentiment Index measured in at 97.2, the highest reading in 12 months.

A scenario in which Current Economic Sentiment increases, but Future Expectations remain unchanged is unusual, and is likely reflective of the times we are living through. Potential reasons for this include uncertainty about potential COVD-19 prevention measures in the coming months, but more importantly, a sharp increase in inflation expectations.

Inflation expectations measured in at 3.7%, a peak reading for almost 10 years.

This is somewhat at odds with the rhetoric coming out from the Federal Reserve. Fed Chair Jerome Powell has consistently stated that he is not concerned about inflation, and that interest rate increases would not become a reality until the end of the pandemic.

Consumers are taking this in, to an extent, as inflation expectations for the next five years remained lower at 2.7%. Short-term fears are still real, however, and could impact short term spending decisions.

Inflation fears are being offset by a more favorable assessment of the job market and income expectations. Net income is currently at a level equal to that just before the start of the pandemic in early 2020, indicating a recovery is very much on the cards. Consumers are likely to be cautious about their spending habits however in the months to come, muting the full impact of economic recovery measures.

 

Jay Brahach
Account Executive & Currency Analyst

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