The Great Divide

From the Wall Street Journal:

Higher gasoline prices and the tense standoff in the Middle East helped push consumer sentiment to a new all-time low in May, with rising anxiety about future inflation, according to the University of Michigan’s monthly survey.

The survey’s headline index declined to 44.8 this month, from April’s 49.8, per results published Friday morning. The April reading was itself the lowest final number ever recorded to that point. An initial May reading published earlier this month came in at 48.2.

Consumers’ grim mood spanned people from both political parties and reflected concerns about high living costs and the prospect of more inflation ahead, the survey’s director Joanne Hsu, said."

While I take some issue with these types of surveys in general, an all-time low in consumer sentiment isn't nothing. And I believe this isn't far off from feedback that I get from clients every day. They don't feel good about the economy and feel as if the market is ready to fall out of bed as it continues hitting all-time highs.

But I think the general public hates inflation more than anything. From Jared Bernstein:

“I would actually say ‘Look, inflation was 9%, now it’s 2.5%. That’s good right?’ And people would be like ‘No, eggs were $1.50 and now they’re $4.50. And all you’re telling me is that their prices are going up more slowly. I want them to go down,” Bernstein said. “The sentiment that I think was registering for people back then was ‘I remember what my old prices were, and damn it—I want them back.’”

To be clear, the only way for those old prices to come back is via a deflationary environment. And if you look up the times in history where this persisted (late 19th century, 1930-33, 2007-09) you'll notice these years correspond with horrible economic conditions. There would likely be massive tradeoffs in having widespread prices come down.

So, perhaps it's best to just live with where prices landed after the latest inflation bout. Stay invested, shut off the news and focus on the positives (and there are many).

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^Sources:

^{Consumer sentiment drops to new low, University of Michigan survey finds (WSJ)}

^{Why You Feel So Much Worse About the Economy Today Than During the 1970s (Barron's)}