Americans' Urge to Splurge Starting to Make Inflation Hawks Edgy

(Bloomberg) -- More American consumers than at any time in 27 years are convinced that it's better to make big purchases now because retailer discounts and deals won't be around much longer.

Some 21 percent, the largest share since November 1990, said in March that conditions to buy appliances, electronics and other household durable goods are currently “good” because prices won't fall further, according to the University of Michigan's latest survey of consumer sentiment.

“When asked about buying conditions, the appeal of low prices has largely disappeared,” Richard Curtin, director of the Michigan survey, said in a statement. “For durables, it has been replaced by favoring buying in advance of anticipated price increases.”

With financial markets more sensitive to data that could persuade Federal Reserve policy makers to adjust the frequency of interest-rate hikes, such signs of rising inflation expectations could become a greater source of concern if they are sustained and more widespread.

To be sure, the data may simply show households are anxious about the effects on prices from higher tariffs, including those on washing machines and steel.

While consumers may be inclined to think that, Bloomberg Economics chief economist Carl Riccadonna said, “the tariffs-driving-prices-higher story is way overblown, especially if we're just talking about a narrow range of products.”

Details of the University of Michigan's latest consumer survey also showed just 28 percent said buying conditions for durable goods were good because of lower prices. That's the smallest share since the economy was in the middle of the last recession.

Meanwhile, another figure in last week's report showed even greater demand for big-ticket goods. Typically that would be good news for the economy. But in the context of what may be the start of rising inflation expectations among consumers, it could be a very early caution signal for U.S. central bankers.

“Inflationary psychology is feared because it is a self-fulfilling prophecy; rather than diminish demand, increases in expected prices accelerate purchases,” Curtin said.

So far, though, inflation expectations are still just gradually moving higher. Consumers surveyed by the University of Michigan see an inflation rate at 2.8 percent in the next year. While the highest since April 2016, it's well below the pace seen from 2011 to mid-2014.

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Brendan Murray, Randall Woods

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