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Consumers are bracing for inflation to heat up. The market isn't.
Their outlook for long-term inflation jumped to 3.9%, its highest level in three decades - via Michigan consumer sentiment survey.
Could the experiment of price elasticity of demand we've been experiencing be coming to a head?
Large moves in inflation expectations over the past three months contrast sharply with market expectations for inflation based on inflation adjusted Treasury pricing.
Inflation breakeven rates have fallen since early this year.
The disconnect suggests the consumer is reaching their limit on pricing, as they fear tariffs will result in another push higher in the cost of goods.
Ahead of tariffs, the hard inflation data cooled a bit (see charts below) in February showing it is moving in the right direction absent an external shock.
Related: Recession Watch: GDP Slips and Consumer Spending Stalls