Sticky UOM Inflation Expectations By Tony Crescenzi RealMoney.com Contributor 2/16/2007 10:29 AM EST
The preliminary results of the University of Michigan's February
consumer sentiment survey were weaker than expected, but with stronger-than-earlier whispers for an even weaker number. The UOM consumer sentiment
index fell to 93.3 in early February from 96.9 in January, which was the
highest level since December 2004. Expectations were for the index to fall
only slightly to 96.5. The current reading is third best of the past 18
months.
Probably the most important detail within the report was the continued high
level of inflation expectations. Consumers said that they expect inflation
to run at a 3.0% pace over the next year, the same rate that they forecast
in January.
This stickiness is important when put in the context of the
recent decline in energy costs, which one would think might lower inflation
expectations. This stickiness is one of the reasons why Bernanke and the
Fed are emphasizing the importance of waiting on a sustained drop in
inflation before sounding the all-clear.
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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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