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No evidence yet of 'inflationary psychology', University of Michigan says

By Alexander Bueso

Date: Friday 26 Feb 2021

LONDON (ShareCast) - (Sharecast News) - Consumer confidence in the US picked up a tad in late February, but middle-income families were not overly confident regarding the prospects for a quick rebound in the economy, findings from a key survey revealed.
Inflation expectations also appeared to still be focused mainly on the near-term.

The University of Michigan's consumer confidence index rose from a preliminary print of 76.2 at the start of the month to 76.8 (consensus: 76.2).

However, at the end of January the index had stood at 79.0.

All of February's loss was down to less upbeat sentiment among households with incomes lower than $75,000 annually, Richard Curtin, the survey director for the University of Michigan said.

Yet Curtin also pointed out the "interesting" fact that college degree holders had been more cautious regarding prospects for the economy "until just a few months ago".

Those with less than a college degree on the other hand had recorded the least favourable economic prospects in the latest survey - "indicating the high cumulative toll of the pandemic".

Inflation expectations one-year ahead meanwhile rose from 3.0% in January and 2.5% for December to 3.3% in February.

But there wasn't yet evidence of an "inflationary psychology" emerging.

That would turn expectations of inflation into a 'self-fulfilling prophecy', he added.

"The key lesson learned from the last inflationary era is that it is easy to underestimate the strength of inflationary psychology, and correspondingly, it is easy to overestimate the ability of economic policies to bring an end to inflationary psychology," Curtin judged.

Oxford Economics's Nancy Vanden Houten was in a similar frame of mind: "Households' forecast for inflation over the next year rose, but the longer-term outlook remained anchored, suggesting that consumers expect any near-term rise in inflation will be transitory."