So much has changed in just a few days: one week ago people cared about boring stuff like seasonally adjusted payrolls (a product of White House administration propaganda as much as actual data) and the readjusted Consumer Price Index (also a product of White House administration propaganda as much as actual data). Well, nothing like a bank crisis to clear one's head of goal-seeked data that would make Beijing blush. And also - apparently - there is nothing like a bank crisis to send inflation expectations plummeting.
Earlier today, in breach of today's data vacuum, the NY Fed published its latest Survey of Consumer Expectations, which showed that inflation expectations collapsed at the 1-year horizon, plunging by 0.8% to 4.2%, the lowest since May 2021...
... and the biggest monthly drop on record for the series! One can only imagine what the read would have been if the poll had taken place after the collapse of SIVB and SBNY.
At the same time, 3Yr inflation expectations remained unchanged, and slightly increased at the long-term horizon.
Most importantly, expectations about year-ahead price increases for core staples such as gas, food, cost of rent, college education, and medical care all declined as follows:
Needless to say, this number will only go down the worst the banking crisis gets.
And like that... inflation is gone.
This was the first of a run of key readings on inflation (CPI and PPI are due tomorrow and Wednesday), consumer spending and sentiment that could determine whether the U.S. central bank presses on with interest rate hikes or pauses to measure the fallout from bank failures that prompted it to take emergency action.
On the other side, labor market expectations improved, with unemployment expectations and perceived job loss risk decreasing and job finding expectations increasing, but expect this to crater in the March survey after several hundreds thousand people are let go as a consequences of the fast spreading bank crisis contagion.
There was more bizarre optimism as expectations for voluntary job quits reached the highest level since the start of the pandemic. Households’ perceptions and expectations for current and future financial situations both improved.
Some more details from the report:
One of the more notable expectations was that 32% of consumers expect higher rates on savings accounts. Well, we have some bad news...
Finally, the mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 0.7 percentage point to 36.4%. Good luck with that.
Full report here.