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Morning Brief: Consumer inflation concerns

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Myles Udland breaks down the Morning Brief as consumers are starting to feel the pressures of inflation due to demand not being able to keep up with supply resulting in rising product prices across the market.

Video Transcript

MYLES UDLAND: We begin this morning with the latest edition of the Yahoo Finance Morning Brief. Sam Rowe writing about the old measure of inflation expectations and just how much consumer views feed into this. Last week, we got a couple of different consumer confidence readings, one from the Conference Board and one from the University of Michigan, the final look at consumer sentiment for the month of May. And both of them made some reference to consumers perhaps feeling less good about their financial standing, their economic position, on account of some higher prices showing up.

And this, of course, is the real concern of economists. They are always worried about inflation expectations being "anchored" is the word that they all like to use. But the basic, very, very basic economic idea is that if consumers think prices are going higher quickly, they will spend more now, thus generating even higher prices. The other fear is that when consumer inflation expectations go too low, consumers will delay spending in anticipation of future lower prices and thus cut back on demand.

Now last week, we saw that core PCE number-- this is the Fed's preferred measure of inflation-- move up significantly, as we saw the CPI data do earlier last month. Confidence, as we can see here, has leveled off just a little bit. And Brian Sozzi the fear that those who are skeptical of the Fed's current-- let's call it-- let's call it patience with respect to inflation. The Fed is basically copacetic here, as it relates to inflation. They're not too worried about it. Just this morning, Mohamed El-Erian saying that he is a little bit concerned about inflation. And I think to see maybe consumers thinking a little bit about this dynamic certainly bears watching. I know that you and I, Sozz, probably on different sides or certainly on different sides of this debate. But the data is now really starting to roll in.

BRIAN SOZZI: Now it takes two to make a market, Myles. And I got a story right now on the Yahoo Finance homepage. Costco disagrees with the Federal Reserve on inflation. I encourage everyone to check that out. But Myles, I'm curious to ask you if, you know, just given-- if people are expecting higher prices six months from now, 12 months from now, it doesn't-- is that a good thing for consumer spending? Why not stock up on Levi's jeans or Nike sneakers today if I think those prices are going to be higher by the end of the year?

MYLES UDLAND: There you go. You've exactly made the argument for why the Federal Reserve is targeting 2% average inflation over time and why central bankers have been so concerned that inflation is not averaging 2% over the last decade because there is a certain amount of this demand. I mean, we could go all day on whether you're pulling demand from the future, how you all wanted to find that.

But, you know, essentially, that argument that consumers feeling like they should spend their money now rather than wait for some future price point that may or may not materialize is really the driver of the consumer economy. And the economy itself is mostly driven by consumer choices. About, what, 68% of GDP, I think, is consumer spending. And so, again, you know, Sozz, like, everyone here is worried about inflation, but, Julie, ultimately that kind of argument is what underpins the entire basis of the modern monetary policy project, if we call it that.

JULIE HYMAN: You're going to buy your Nike's or your Levi's now, you're probably not going to buy another pair in addition, if prices are still going up, which then, in theory, would cap the increases in inflation. Do I have that right? Is that about what we're talking about? In any case--

MYLES UDLAND: I think--

JULIE HYMAN: --I don't know. I'm getting too tortured here.