On Thursday, the Bureau of Economic Analysis (BEA) will report on Personal Consumption and Personal Income (as well as the difference between those two, the Personal Savings Rate). Accompanying the economic figures will be the usual estimates for consumer prices, in this case the Federal Reserve’s preferred inflation gauge the PCE Deflator. There isn’t expected to be much good news for policymakers, though it is for struggling consumers.
If inflation was about to explode higher especially in the form of wage rates due to the extremely low unemployment rate, it is quite interesting that not one market is pricing that scenario. Long-term bond rates as well as the eurodollar futures curve all suggest more of the same moribund economic conditions continuing well off past the foreseeable future.
Surveys of consumers point in the same direction, not that laypeople appreciate and understand the monetary dynamics of eurodollars to GDP, more so that they provide an unfiltered view of basic economic conditions on the ground (as opposed to economists who only see what they want to see). On the count of inflation, consumer attitudes more than roughly mirror market-based indications of this woeful economic baseline.
The University of Michigan’s most recent Survey of Consumers finds once again very low, historically speaking, expectations for inflation in the near as well as intermediate terms. An unemployment rate of 4.1% aside, there just aren’t any expectations for things to change even almost two years after the last serious downturn (the one that produced these low inflation expectations).
In fact, TIPS trading became slightly more optimistic than these consumer surveys at least until earlier this year. Peaking in February, the 5-year/5-year forward inflation rate was sideways for a few months before trading back lower again right around the time oil prices sank rather than surged.
