Chart of the Week
While the very strong inflation figures for May (8.6% over 12 months) were widely commented on, the latest indicators published by the University of Michigan also gave the Federal Reserve cause for concern. The household confidence index reached a new historic low. The survey also presents two inflation expectation figures, one in the short term (1 year) and the other in the longer term (5 to 10 years).
OUR ANALYSIS
Short-term expectations are very sensitive to current inflation and in particular to changes in fuel prices. Long-term expectations are less variable. Having been relatively stable between the end of the 1990s and 2014, they had gradually declined until 2016. Since the beginning of 2021, they seemed to have returned to the average level that prevailed until 2014, but the preliminary figure for June now shows a clear jump to 3.3%, one of the highest levels since the mid-1990s.
It is still too early to say whether this movement will last or is set to be amplified. The anchoring of inflation expectations was an important element of the disinflation of the 1990s. If expectations continue to rise, it will make it harder for the Fed to reduce inflation.
The opinion expressed above is dated June 17, 2022 and is subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/germany-job-vacancies-continue-to-rise-in-may/
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