US DATA: Final UMich Shows Jump In L-R Inflation Expectations (And Partisanship)

The final University of Michigan consumer survey for February showed a worrying rise in long-term inflation expectations alongside a deterioration in consumer sentiment, but we continue to highlight that partisan political identification has driven a divergence that make the report difficult to cleanly interpret. 

• Overall consumer sentiment fell to 64.7 in February from 71.1 prior (and down from 67.8 in the prelim report) - but Republicans remained confident (86.7 for a 2nd consecutive month, vs 49.7 in September, prior to the Republican sweep at the November election) while Democrats' confidence continued to deteriorate (51.3 vs 65.0 in January, and 92.6 in September).
• The rise in long-term expectations to 3.5% in the final report (from 3.3% prelim, 3.2% Jan) was notable (1-year ahead was confirmed at a post-Nov 2023 high 4.3%, vs 3.3% in Jan).
• This is a fairly stunning long-term figure - it's the highest since the mid-1990s and the biggest one-month jump since May 2021, and for its flaws, this indicator definitely has the attention of policymakers (2025 FOMC voter and St Louis Fed Pres Musalem said yesterday that he had noted some indicators of inflation expectations rising, specifically noting that "the University of Michigan survey shows some firming of longer-term consumer inflation expectations").
• But as we noted with the prelim report, inflation expectations are also muddied by partisanship, with Republicans now expecting no inflation in the next year and <2% over the 5-10 year horizon, but Democrats seeing 5.1% 1Y inflation and 4.2% longer-run.
• That said, the drop in sentiment "was unanimous across groups by age, income, and wealth. All five index components deteriorated this month, led by a 19% plunge in buying conditions for durables, in large part due to fears that tariff induced price increases are imminent", per the report - and the increases in inflation expectations were "widespread". So there may yet be more signal than noise from the trends in the survey.