Consumer Expectations Crash, 1 Year Ahead Inflation Expectations Soar as 5 Year Ahead Hits Record

5 year ahead inflation at 3.5%, highest since 1995M04. From Michigan Survey of Consumers:

Figure 1: Michigan Survey Consumer Expectations (bold black), Democratic (light blue), Independent (chartreuse) and Republican (red). Source: Michigan Survey.

The overall month-on-month drop in Expectations is about 1.2 standard deviations (1986-2025, exc. Covid months). The two month drop is 1.4 standard deviations. Interestingly, Democrats/Lean Democratic mirror Independents, while Republicans/lean Republican move on their own trajectory.

Here’s the corresponding picture for current conditions. Interestingly, the month-on-month drop here is almost 2 standard deviations (ex-Covid months).

Figure 2: Michigan Survey Consumer Current Conditions (bold black), Democratic (light blue), Independent (chartreuse) and Republican (red). Source: Michigan Survey.

How representative is the Michigan survey for overall sentiment? Here is the Michigan Sentiment survey compared to the Conference Board’s Confidence index (up to January), and Gallup’s Confidence measure.

Figure 3: Michigan Economic Sentiment (blue, left scale), Conference Board Confidence (brown, left scale), Gallup Confidence (green, right scale). Source: Michigan Survey of Consumers, Conference Board, Gallup. 

Finally, the preliminary reading on inflation expectations has held up.

Figure 4: U.Michigan Survey of Consumers one year ahead inflation expectations (blue), five year ahead (brown). Source: U.Michigan Survey of Consumers.

If the jump in medium term inflation expectations holds up in NY Fed’s survey, then we can think of inflation expectations becoming unanchored. Why that might have occurred might be related to the implicit and explicit attacks on the Fed’s independence.

Addendum:

Stock indices down, as of 3pm CT: