The politics of price expectations

Daily update

US Michigan consumer sentiment data is a weak economic signal. It does have political punch, via the inflation expectations measure. Consumers focus on the price of frequent purchases (food and fuel), and tend to fixate on the price level. Most consumers will have a “fair” price in mind as a reference, and for gasoline prices that is probably around USD 2.50 per US gallon. Gasoline remains well above that level—off its highs, but having risen recently.
Why does this matter? Because investors are looking for political pressure points that might produce US concessions, allowing a reopening of the Strait of Hormuz. US President Trump’s approval rating has correlated more strongly with the persistence of gasoline prices above pre-war levels than with the wilder swings in the price of crude oil.
Equity markets have fallen, led by technology stocks. Tech stock moves do not seem to be reflecting changing macroeconomic expectations, but their declines may feed back into the economy. Investment spending by tech companies has driven growth in some areas, though it has also potential sucked investment from other areas. Wealth effects, letting higher equity prices push up consumer spending, are less obvious.
Final June Eurozone consumer price data is due. This rarely changes, and does not excite investors much.