Myles Udland breaks down the Morning Brief as consumers are starting to feel the pressures of inflation due to demand not being able to keep up with supply resulting in rising product prices across the market.
Consumers are getting a little nervous about inflation
Consumer confidence is colliding with rising prices.
On Friday, we learned the personal consumption expenditure (PCE) price index was up 3.6% year-over-year in April. The core PCE price index, which excludes food and energy, was up 3.1%, the biggest jump in this index since 1992.
Similar to how they reacted to the hot April consumer price index (CPI) report, economists were quick to note this increase was largely due to temporary anomalies tied to the pandemic. “We continue to move through the near-term surge in inflation as COVID-19 distortions unwind and services spending and inflation, in particular, continue to play catch-up from depressed levels,” Morgan Stanley’s Ellen Zentner said.
However, assertions that the current bout of price volatility is a transitory phenomenon haven’t placated consumer concerns that prices may be materially higher down the road.
The Conference Board’s Consumer Confidence Index published last week declined modestly to 117.2 in May from 117.5 in April as consumers were “less upbeat this month about their income prospects—a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July.”
Similarly, the University of Michigan’s Consumer Sentiment Index out last Friday fell to 82.9 from April’s reading of 88.3. Michigan survey director Richard Curtin said, “It is hardly surprising that the resurgent strength of the economy produced more immediate gains in demand than supply, causing consumers to expect a surge in inflation. Record proportions of consumers reported higher prices across a wide range of discretionary purchases, including homes, vehicles, and household durables — the average change in May vastly exceeds all prior monthly changes.”