Inflation Is Starting to Weigh on Consumer Confidence and Spending

This week US CPI inflation for June rose at a stunning 0.9% MoM, or 11% annualized, placing it among the highest sequential inflation readings in the past 40 years. Sure, much of the reading can be chalked up to used car prices and airline tickets, which are unlikely to continue to rise at this pace and may actually fall back. Still, food inflation rose 0.8% MoM, energy inflation rose 1.5% MoM, and rents increased 0.5% MoM. When food, energy and rent prices rise like this it inevitably starts to crimp consumer confidence and consumption related activity. That may be what we are seeing now.

The rest of this piece will focus on the recently released University of Michigan consumer survey for June, and we’ll try to draw the connection between inflation and consumer related activity.

In the first chart here we are showing 1-year forward inflation expectations according to the survey. At 4.8%, this June reading was the second highest going back to 2000.

Meanwhile, survey respondents are saying current economic conditions are plummeting. Current conditions have fallen from the high 90s back toward 84.5, which is on par with the depressed readings from the 2010-2011 period.