- Inflation surged close to 40-year highs in November, but signs show Americans aren't scared of it.
- The Consumer Confidence Index climbed in December as adults' inflation fears started to cool down.
- In the market, the 5-year breakeven rate for Treasury bonds also signals inflation worries peaked in mid-November.
If Americans have been worried about a 1970s-like inflation crisis, their worries didn't last for long.
Soaring prices have put a huge damper on peoples' recovery hopes. The Consumer Price Index �— a popular measure of US inflation — soared 6.8% year-over-year in November, marking the fastest pace since 1982. The surge has also been broad-based, with shoppers facing higher prices everywhere from online storefronts to the gas pump.
The historically strong inflation tanked Americans' recovery hopes in the fall, but their sentiments are quickly shifting. The Conference Board's Consumer Confidence Index rose in December to 115.8, according to a Wednesday release. That marked the index's highest reading since July. November's print was revised higher to 111.9, reversing the decline shown in preliminary data.
Much of the improvement came from fresh optimism that inflation would die down. Surveyed adults' concerns around price growth declined in December after touching a 13-year high the month prior, according to the report.
Red-hot inflation isn't derailing Americans' spending plans, either. The share of respondents planning to buy homes, cars, appliances, and vacations over the next six months all increased, The Conference Board said.
It isn't just everyday Americans turning less fearful about inflation; those with money on the line are also growing less concerned. The 5-year breakeven inflation rate has steadily fallen since peaking at 3.17% in November. The rate, which measures Treasury yields to gauge what investors expect inflation to be in the next five years, sat at 2.69% as of Tuesday's close. After calling for stronger yields to pad against higher inflation, investors are quickly pulling back on their demands.
In other words, the market expects inflation to come down rapidly in the medium term.
The latest signals suggest Americans and markets are siding with the Federal Reserve's inflation outlook. The central bank published new economic estimates on December 15 that still see inflation easing in 2022, albeit at a slightly slower pace. Officials' median projection calls for inflation to slow to an annual rate of 2.6% next year from 5.3%. That's up from the September forecast of 2.2% inflation in 2022. Price growth will continue to weaken in the following years before reaching 2% in the long-run, according to the estimates.
To be sure, other measures of Americans' outlooks have been less rosy. The University of Michigan's Consumer Sentiment Index rose to just 70.4 in preliminary December data. That's below October's print of 71.7 and hints at still-widespread pessimism toward the recovery, but it's also a recovery from November's print of 67.4.
The University of Michigan index has generally been more pessimistic about the economy than the Conference Board's, but they differ in a few key ways. For one, the Conference Board's December survey period ended early due to the holiday season, and the time since has seen the Omicron wave quickly intensify. The sentiment index also focuses more on conditions for buying durable goods, while the Conference Board asks more questions about the labor market. So Americans have been way more pessimistic about buying things than about their own employment prospects — and they're getting less pessimistic on both counts.
Going forward, the Fed is expected to play a major role in taming inflation. The central bank announced last week it would double the pace at which it reins in its emergency asset purchases, setting the program up to completely end in March. The move sets the stage for rate hikes in 2022, and the Fed's projections showed officials anticipating three increases throughout next year.
That might just be enough to placate everyday Americans. After months of heightened inflation, the country largely agrees that the worst of the situation has passed.