Please find below our updated inflation expectations chart pack for May. Highlights:
The University of Michigan’s 5-10y inflation expectations subindex rose 20bps in the May flash release to 3.2% - a new high for this inflation cycle. Having jumped notably in the April release, the 12m ahead inflation expectations number stayed elevated at 4.5%.
A smoking-gun driver for the jump in these numbers is still absent. Fluctuations in gasoline prices, historically closely associated with the 12m expectations number, do a poor job of explaining the recent jump. According to the latest Michigan data book, dispersion around the 12m number shifted lower but dispersion around the longer-term number shifted higher in March - the April data book and May final release / data book may shed more light.
Historically, the Michigan inflation expectations subcomponents have tended to drift higher in the early months of NBER recessions. This is far from a perfect rule, but is a general bias.
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