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The University of Michigan’s preliminary Consumer Sentiment Index gauge for May is set to rise from April’s 88.3 points, yet remain below pre-pandemic levels. The inflation expectations’ components are eyed. In the view of FXSteeet’s Analyst Joseph Trevisani, if consumer sentiment is lackluster, the dollar and equities will take the hit.  

Inflation may be a growing concern for consumers

“The Michigan Consumer Sentiment Index is expected to rise to 90.4 in May, which would be the third pandemic high in a row, following 84.9 in March and 88.3 in April. Sentiment was 101 last February before the government ordered lockdowns struck the economy in March and April.”

“The Federal Reserve contention that the current price increases are a temporary phenomenon has merit, and the annual gains will drop back once last year’s trough in the index is passed. Likewise, the resource and component shortages will pass as the global economy normalizes but even when they do prices are very unlikely to return to the pre-pandemic levels.”  

“For the consumer, looking at a year or more of elevated and rising prices, the derivation is moot. Inflation is a tax on income and if it persists, it will sap the consumer spending essential to a successful US recovery.”  

“Markets are focused on inflation, if consumer sentiment is lackluster, the dollar and equities will take the hit.”

 

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