Yesterday we discussed whether the US had some big underlying problems and was it hiding a divide between what the data is telling us and what was actually happening in the world of the average American.
The Michigan survey is a small slice of random American life, and based on 500 people on a telephone call may not be the best overall indicator. It is what it is though and the market chooses when it wants to pay attention to it.
Adam covered the inflation angle very well but there could well be a little clue in the inflation expectations that many don’t see.
First and foremost, if your average American is anything like your average Brit then they don’t really have a clue what inflation is likely to be in a years time, much less 5 years. There’s probably a large amount who won’t even know what the inflation rate is right now.
So, psychologically how would people answer that question? It’s likely they answer based on what they know now. If they go to the shops and it costs them more than last week then at the back of their mind prices are going up. That forms a bias when taking it into a conversation. Therefore it’s a bit of a shock to see those expectations rise while the airwaves are flooded with news of falling oil and commodity prices. If you were told 24/7 that prices are falling your bias might be set lower. If it is true that the average Joe is seeing prices rise it’s going to throw the lower inflation argument right into the air.
There is a big caveat though. We could well have seen these expectations rise purely because lower prices haven’t filtered through to your average American’s pocket yet.
Either way the survey does go someway to putting in a counter argument to what we spoke about yesterday, even if it’s a small part of the bigger picture. Let’s see what next month brings.
