Why Are Consumers So Spooked By Inflation?

Economists may believe that inflation is dead in the water, but consumers are still seeing inflationary ghosts. Economist Edward E. Yardeni of C.J. Lawrence Inc. points out that respondents to the University of Michigan's consumer sentiment survey in June said they expected inflation to average 4.8% in the year ahead. That's up from 4.4% in May and 3.3% six months ago.

Since the latest inflation readings (including June's 0.3% drop in the producer price index) have been reassuring, it's not clear why inflation fears are growing. Yardeni thinks it's rising concern over coming hikes in cigarette and gasoline taxes. He points out that confidence in the government's economic policies continues to wane--with 40% of households indicating they felt the Administration was doing a poor job in June, compared to 28% as recently as March.

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