Chart Content: Measures of core goods inflation and core services inflation
Chart Significance: Fiscal stimulus provided during the COVID pandemic combined with government mandated lockdowns resulted in unprecedented demand for consumer goods while supplies remained constrained. These dynamics led to surging inflation for core goods. As the economy emerged from lockdowns in the latter half of 2021, spending began to shift from goods toward services, allowing goods inflation to peak in February 2022.
Potential Forward-Looking Implications: Receding goods spending should allow for continued weakening in goods inflation. Should goods inflation decline more than services inflation rises, the dynamic should push overall inflation downward.
Chart Content: Long term inflation expectations and consumer sentiment readings from the University of Michigan’s Surveys of Consumers
Chart Significance: The Surveys of Consumers are conducted monthly by the University of Michigan and provide regular assessments of consumer attitudes and expectations. The results are used to evaluate trends and explore how changes in consumer attitudes and expectations influence consumer spending and savings decisions. When asked about the outlook for prices over the next 5 to 10 years, the average consumer surveyed estimated that inflation will rise by 3.1%. Consumer sentiment, which measures attitudes toward personal finances and general business and market conditions, hit the lowest reading on record, suggesting that high inflation is contributing to extreme consumer pessimism.
Potential Forward-Looking Implications: Long term inflation expectations remain well anchored, settling within the 2.9% - 3.1% range for the past 11 months. The stability in long term inflation expectations is a positive sign that inflation has not become entrenched in the economy. As inflation peaks and begins to moderate, we see notable opportunity for sentiment improvement in the second half of 2022 which may prove a tailwind for equity market participation.
Investment Policy Committee – Credent Wealth Management
Investment advice offered through CX Institutional, a registered investment advisor.
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All other data, including returns, sourced from Bloomberg, through the release of monthly figures from the Department of Labor, U.S. Bureau of Labor Statistics, or from the Federal Reserve and any of its affiliated regional locations.