"...... consumer expectations for inflation in housing, durable goods, and autos is at the worst since 1981."

 

For the youngsters out there, back in 1981, inflation was running at 10.3 percent, and the 30-year mortgage rate was above 16 percent.

The April surge in inflation caught Federal Reserve officials, the Biden administration, and most economists off guard. While prices were expected to climb as the economy reopened and consumers--flush with $2.3 trillion or so of excess savings thanks to stimulus checks, suspended student loan payments, and a year of repressed consumption--headed back into stores, restaurants, and, apparently, used car lots, very few analysts foresaw just how much inflationary pressure had built up.

Interestingly, however, the public seems to have been ahead of the experts. The University of Michigan's Survey of Consumer Sentiment on Friday showed that inflation expectations have jumped much higher. One-year expectations jumped 1.2 percentage points to 4.8 percent, and five-year expectations shot up four-tenths of a point to 3.1 percent. Richard Curtin, the longstanding guru of consumer sentiment who is set to retire at the end of this year, pointed out that consumer expectations for inflation in housing, durable goods, and autos is at the worst since 1981. For the youngsters out there, back in 1981, inflation was running at 10.3 percent, and the 30-year mortgage rate was above 16 percent.

Despite the much higher than expected jump in prices, retail sales for April managed to miss estimates to the downside, and industrial production fell short of expectations as well. This indicates that businesses are having trouble keeping up with stimulus-inflated demand. That economic dislocation could last longer than many analysts currently appreciate because spending is likely to remain high thanks to the excess savings and pent-up demand, but businesses will hesitate to make investments in expanded production knowing that, eventually, spending will come back to earth. The threat of rising taxes will also drag on investment.

Meanwhile, in the nation's capital, 88 percent of gas stations were out of gasoline this morning. While this gas crisis will likely be resolved soon now that the pipeline is up and running, it has likely already become a drag on the economy as people spent more on fuel than other consumption, stayed home to conserve gas, and may have missed work when gas became unavailable. And that's before we count the likelihood that the failure to provide one of the most basic goods of our economy will weigh on the confidence of businesses and households.

– Alex Marlow & John Carney
Breitbart News Network