Inflation appears to be coming down after signs of sticking early this year. Americans aren't convinced it will continue to cool.
A slew of big-box retailers have lowered prices on items in recent weeks, citing moderating inflation and frugal customers. Walmart rolled back prices on nearly 7,000 items in its stores. Target slashed prices on more than 1,500 items, ranging from laundry detergent to cat food to sunscreen, with thousands more price cuts expected over the summer. Amazon Fresh is discounting thousands of grocery items. Ikea and Aldi have also reduced prices.
Recent economic data has also suggested that inflation is cooling, after data earlier this year spurred fears that progress had stalled. The latest Consumer Price Index report showed prices rose 3.4% for the 12 months ended in April, easing from 3.5% the prior month. Core CPI, which strips out the more volatile food and energy categories, slowed to 3.6%, its lowest rate since April 2021.
But Americans seem unsure that inflation's downward trajectory will last. The Conference Board's latest Consumer Confidence Index released Tuesday revealed that average 12-month inflation projections rose to 5.4%, and the share of consumers that expect higher interest rates in the year ahead climbed to 56.2%.
There's long been a divergence between the way the economy looks on paper and the way it feels for everyday Americans. Stocks have notched repeated record highs, and corporate earnings are robust. The unemployment rate is at a historic low. Yet Americans don't seem convinced that inflation is moderating or that the economy is as healthy as indicators suggest.
And it's no wonder: US home prices hit a record high in March, underscoring the affordability crisis slamming prospective buyers. Mortgage rates have declined in recent weeks but remain near 7%. Grocery prices began easing last month but only slightly. Menu prices are still high, particularly at fast food chains. Even high-income consumers, who have helped power the economy as rates remain elevated and lower-income Americans tighten their purse strings, are pulling back.
Inflation concerns have also jumped among everyday investors. The share of respondents in Charles Schwab's second-quarter sentiment survey reporting inflation as a primary concern around investing climbed to 19%, more than doubling from the prior year.
"Traders began the year feeling pretty confident that the economy was improving and Fed rate cuts would be quick to follow," said James Kostulias, head of trading services at Charles Schwab, in a release. "But inflation concerns have jumped significantly."
Wall Street will get its next look at the state of inflation when the latest Personal Consumption Expenditures index, the Federal Reserve's favorite inflation gauge, is posted Friday morning.
Some Fed officials have said they are no longer worried about reaccelerating inflation after the April CPI report broke a streak of warm inflation data released during the first quarter. Fed Chair Jerome Powell said following the central bank's May policy meeting that while inflation is still too high to begin lowering rates, "longer-term inflation expectations appear to remain well anchored."
While Powell also ruled out another rate hike, not all Fed officials are on the same page. Minneapolis Federal Reserve President Neel Kashkari said Tuesday that he believes all options to tamp down inflation are still on the table and that he wants to see "many more months" of cooling inflation data before lowering rates.
"I'm not seeing the need to hurry and do rate cuts. I think we should take our time and get it right," he told CNBC.
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