Rising gas prices may not yet be affecting core inflation at the consumer level but the consumer's inflationary expectations are definitely on the rise. One-year inflation expectations surged seven tenths during the first two weeks of this month to 4.0 percent which is a very high reading for this report. But five-year inflation expectations, up only one tenth to 3.0 percent, suggest that consumers, at least so far, see the jump at the pump as only temporary.
High gas prices not only affect inflation expectations but they also eat into income expectations as well, a factor no doubt at play in a one point decline in the headline consumer sentiment index to 74.3. The decline, which interrupts this year's positive momentum, is centered in the expectations component, down more than two points to 68.0. The current conditions component, reflecting the ongoing run of very solid job and retail sales data, rose more than one point to 84.2. The Dow is moving off opening highs in reaction to today's report.