After 'current conditions' surged higher in December - on Trump optimism - analysts expected confidence to remain high in preliminary January sentiment data from UMich.

But the data was mixed with Current Conditions soaring further (highest since April) while expectations dropped (lowest since July), dragging the headline down modestly...

Source: Bloomberg

Democrats continue to get more depressed as Republicans' sentiment continues to rise...

Source: Bloomberg

Most problematically, inflation expectations soared with the 5-10Y horizon surging to its highest since 2008...

Source: Bloomberg

UMich reports that inflation expectations are being shaped by beliefs about future policy.

The share of consumers worried about the prospect of tariff hikes continues to rise.

Nearly one-third of consumers spontaneously mentioned tariffs, up from 24% in December and less than 2% prior to the election. These consumers generally report that tariff hikes will pass through to consumers in the form of higher prices, thus pushing up their inflation expectations.

Concerningly, recent data show an emergence of inflationary psychology - motives for buying-in-advance to avoid future price increases, the proliferation of which would generate further momentum for inflation.

Like in December, 22% of consumers this month reported that purchasing durables now would enable buyers to avoid future price hikes, the highest since 1990.

That said, these buy-in-advance price rationales were far more prevalent in the 1970s, averaging 41% in 1978.