Confidence disappoints as inflation expectations jump

The 1st March UoM confidence # was 68.2, well below expectations of 76.3 and down from 77.5 in Feb. It’s the lowest since Oct and was likely due to the sharp rise in gasoline prices as one year inflation expectations spiked to 4.6% from 3.4%, the most since Aug ’08 and not far from the level reached in May ’08 of 5.2%. For perspective, the 20 year average is 2.9%. Inflation expectations 5 yr’s out rose to 3.2% from 2.9%. Most of the decline in confidence was in the Outlook component which fell to 58.3 from 71.6, the lowest since March ’09. Current conditions fell much more slightly, to 83.6 from 86.9. A key argument on the part of the Fed in keeping policy extraordinarily accommodative is that consumer inflation expectations remain contained. That is no longer the case.

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