Friday’s preliminary June reading of the University of Michigan Consumer Confidence Index showed that U.S. consumer sentiment rose more than expected in early June, with inflation expectations unexpectedly declining significantly.
According to the data, the preliminary consumer confidence index for June was 86.4, a significant increase compared to the final value of 82.9 in May, and also higher than the market expectations of 84.4. In addition, the current economic conditions index released at the same time rose slightly to 90.6 from 89.4 in May, while the consumer expectations index rose to 83.8 from 78.8 in May.
In terms of inflation expectations, the survey showed that consumers’ expectations for inflation in the coming year were 4.0%, down 0.6 percentage points from 4.6% last month, while expectations for inflation in the next five years were 2.8%, down 0.2 percentage points from 3.0% last month.
For reference, the break-even inflation rate, which measures the U.S. bond market’s expectations for inflation, has temporarily ended its upward trend since the beginning of the year in mid-May, with the 5-year now roughly in the 2.4-2.5% range and the 10-year in the 2.3-2.4% range.
Richard Curtin, head of the University of Michigan’s Consumer Confidence Survey, noted at the time of the data release that the U.S. economy is expected to see stronger growth, with a record number of consumers expected to record a net reduction in the unemployment rate. But he also noted that rising inflation remains a top concern for consumers, despite the fact that inflation expectations fell in early June.
In its analysis following the data, financial blog ZeroHedge pointed out that the rise in consumer confidence this month far exceeded market expectations, due to the momentum provided by the sharp rise in the consumer expectations index.
And Bloomberg pointed out in an article following the data release that U.S. consumer sentiment rose more than expected in early June due to an improved economic outlook and moderating inflation expectations. In addition, with the removal of travel restrictions, warmer temperatures and weakening health concerns, consumer sentiment is more optimistic.
It is worth noting that the fall in inflation expectations in this survey is in marked contrast to the previously released soaring inflation data. According to the latest data released by the U.S. Department of Labor, the overall U.S. CPI jumped 5% in May, which was higher than market expectations of 4.7%, the highest growth rate since August 2008. The core CPI, net of food and other factors, rose 3.8% year-on-year, higher than market expectations of 3.5%, the highest growth rate since 1992.
And for the record high inflation, there have been market participants pointed out that this is not the Federal Reserve said “temporary” inflation. Michelle Meyer, chief economist at Bank of America, pointed out that as labor shortages and signs of inflation continue to emerge, the Fed and the market’s confidence are becoming increasingly unconvincing, and the foundation for more sustained inflation is being laid from this moment on.