Consumer sentiment rises despite worsening inflation expectations
REAL ECONOMY BLOG | October 14, 2022
Authored by RSM US LLP
U.S. consumer sentiment rose for the fifth straight month to 59.8 in October but a worsening inflation outlook clouded the otherwise positive news, the University of Michigan reported on Friday.
Solid income growth in a tight labor market is keeping household financial conditions strong as sentiment over the current economic situation surged on the month.
For example, consumers felt more optimistic in October when it comes to buying big-ticket items like new vehicles and major household items.
But it was a different story when it came to inflation expectations, which showed troubling signs with the 12-month expectation rising for the first time since March.
Americans now expect inflation to be at 5.1% after the next 12 months, 0.4 percentage points higher than in September. The inflation outlook for the next five to 10 years is also up to 2.9% from 2.7%. Much of the increase came from the top two thirds of the income distribution.
While both the short-term and long-term inflation expectation indicators were below recent highs, they added to the mounting concerns that inflation will become entrenched, as the Federal Reserve minutes showed this week.
For the Fed, the clock is ticking faster as inflation has been with the economy for a year and a half.
If inflation continues to be elevated for too long—about two years, according to our estimate—the risk only grows that inflation will bleed into wages as workers bargain for new contracts and businesses adjust their plans.
That is the reason to believe that the Fed will be more aggressive with its policies, starting with another jumbo 75 basis-point rate hike next month with more coming next year. Those increases would bring the Fed’s policy rate to a range between 4.75% and 5% despite the economic pain those hikes would bring.
Call us at +1 213.873.1700, email us at email@example.com or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Tuan Nguyen and originally appeared on 2022-10-14.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.