U.S. Consumer Inflation Expectations Unexpectedly Fall, Boosting Stock Market and Suppressing Dollar
On August 11, the University of Michigan released its latest data, revealing a surprising decline in American consumers’ long-term and short-term inflation expectations. This unexpected development temporarily boosted the stock market while suppressing the value of the dollar.
The specific data shows that consumers’ one-year inflation rate is expected to decrease to 3.3% in August, which is 0.1 percentage point lower than July’s 3.4%. This is the lowest reading since April 2021, and it goes against market expectations of a rebound to 3.5%. However, it is still higher than the range of 2.3-3.0% before the COVID-19 pandemic hit.
Furthermore, longer-term inflation expectations for consumers over a 5- to 10-year period dropped to 2.9%, down 0.1 percentage point from the previous month. Although this decrease occurred, long-term inflation expectations remain high.
The decline in inflation expectations had an impact on the Federal Reserve’s plans for “further rate hikes” and “keeping interest rates at high levels for a longer time.” Following the release of the report, the US dollar experienced a significant drop, while the three major US stock indexes made a rebound. Particularly, the Dow, which is more sensitive to the economy, turned upward.
The data also indicated an increase in actual prices for gasoline and food. However, the initial consumer confidence index slightly fell to 71.2 in August, which still exceeded market expectations of 71 and remained around the highest level since November 2021. Additionally, the initial value of the current conditions index rose beyond expectations to 77.4, and the initial value of the expectations index reached 67.3.
The report highlighted the “remarkable stability” of short-term inflation for three consecutive months, as stated by survey director Joanne Hsu. Hsu added that consumers have exhibited greater confidence, suggesting that they believe inflation has turned a corner.
Furthermore, the report revealed that buying enthusiasm for durable goods reached its highest level since June 2021. However, Hsu acknowledged that more than a third of consumers expressed concerns about high prices eroding their living standards, indicating that they are still financially affected.
Hsu emphasized that the future direction of consumer confidence will depend on the labor market’s development. Positive developments in the labor market would be good news for consumers. While consumer confidence has partially recovered, individuals remain cautious about changes in labor market conditions, which can impact their spending behavior.
In conclusion, the unexpected decline in U.S. consumer inflation expectations has had a temporary impact on the stock market and the value of the dollar. However, the evolving labor market and its effect on consumer confidence will play a crucial role in the future.
(Article source: Financial Associated Press)
Article source: Financial Associated Press
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