Chart of the week: Inflation expectations are up and media sentiment is down

News sentiment tends to lag inflation expectations. Watch these charts

If it’s Friday, it’s time for Chart of the Week here at Strength In Numbers. Let’s take a look at inflation and news coverage.

Economist Joseph Palitano had a great piece about the impacts of tariffs on mass economic sentiment and the business environment at his Substack Apricitas Economics on Tuesday. He included this chart of consumers’ expectations for inflation over the next one and five to 10 years:

Note two things from this chart:

1. Consumer expectations for rising prices over the next 5-10 years are at their highest level in 30-35 years, during the recession in the early 90s

2. Inflation expectations over the next year, which tend to respond more quickly to changes in the consumer price index, are nearly as high as they were during COVID-19 and the inflation in 2022-2023 under Joe Biden’s presidency

But something didn’t click for me. While the media has covered falling stock prices and rising uncertainty so far this year, the tone of coverage does not seem nearly as negative as during 2022-2023, when inflation was at similar levels.

This was just my anecdotal feeling, however, so I went looking for data. I found it in the San Fransisco Fed’s. index of daily news sentiment, which uses statistical algorithms to grade how positive or negative press coverage of the economy is across a wide range of publications. You can read about their methodology here. And, lo and behold, my hunch was right; media sentiment now is not nearly as negative as during 2022-2023:

According to the SF fed’s data, media sentiment hit its trough in June of 2023. Then, inflation expectations over the next year (according to the University of Michigan’s Survey of Consumers) were modest compared to today at 5.2%. Today the average expected rise in prices among the people University of Michigan surveyed is 6.7% — higher than at any point since November 2022.

One caveat is that the news sentiment data has not been updated for any day after April 1, which is of course incredibly convenient for the Trump administration and very inconvenient for me, since the stock market has crashed 10% since April 1 and presumably sentiment has also sunk.

Regardless, we can observe two things from this (okay, technically one observation and and one speculation):

1. Media sentiment tends to follow inflation expectations. At least during the inflation of the past five years, the tone of news coverage has been a lagging indicator of the objective state of economic indicators. Consumers tend to see price hikes coming before the news really adjusts its coverage down.

2. If that pattern holds, news sentiment should turn negative as media catches up. One theory here is that news coverage takes time to turn around since the news media tends to highlight objective economic indicators based on government surveys, and those take time to conduct and analyze — gov. survey data are published at a one- to three-month lag.

News sentiment is of course important to monitor because it tends to predict changes in public opinion. That has been the historical relationship between TV news coverage and public opinion across many issues, not just economics. That’s not to say that public opinion is entirely downstream of news (political scientists find evidence for causal arrows pointing partly the other way, too) but empirically some of it is.

So if the causal diagram looks at least something like this…

\(\Delta Inflation \rightarrow \Delta News Sentiment \rightarrow \Delta Public Opinion\)

(In English, “change in inflation leads to change in news sentiment leads to change in public opinion”)

…then we should be monitoring the link between the first two items to assess potential change between he second two.

Another angle here is about media bias: Is Trump getting the benefit of the doubt on inflation when Biden wasn’t? What other factors could be leading to varying news sentiment over time? One thing that comes to mind is that the CPI has not, in fact, crashed yet. But the stock market has. (Unfortunately that will probably confound this relationship going forward.)

At least in the meantime, it’s reasonable to expect economic news coverage to get more negative, and probably very soon. And, to make this political, I’m not a betting man but am willing to assign a pretty high probability to sinking approval for the incumbent political party as a result.

Let me know your thoughts in the comments below, and happy Friday,