Inflation expectations will overshadow headlines in U Mich consumer sentiment

The December preliminary survey on US consumer sentiment from Reuters/University of Michigan is due at 9:55 am ET. Overall confidence is expected to rise to 89.5 from 88.8 on a better jobs picture and rising stock market prices but the main headline may be overshadowed by a sub-index.

The Fed is growing increasingly concerned about falling inflation and the consumer sentiment data includes a survey on inflation expectations. In last month’s data, 1-year inflation expectations fell to 2.6% from 2.9% in the preliminary report and after some knee-jerk gains in USD/JPY and yields because of strong headline numbers, the market began to focus on the inflation reading and they declined.

U Mich consumer sentiment

U Mich consumer sentiment

It was the same story the previous month. Overall ‘expectations’ are still above 2% but the survey habitually overestimates inflation and the Fed is more concerned with the trend of lower expectations than the actual number.