Inflation Concerns Weigh on Consumer Sentiment
A recent University of Michigan consumer sentiment survey reveals declining sentiment among Americans, driven by rising inflation expectations. The preliminary reading for February fell to its lowest level in seven months, with one-year inflation expectations jumping from 3.3% to 4.3%.
This represents the highest reading for inflation expectations since November 2023, indicating consecutive months of "unusually large" increases. Moreover, it marks only the fifth time in 14 years that the survey has reported such a substantial one-month rise in year-ahead inflation expectations.
Economists attribute the surge to concerns about potential stagflationary effects, particularly those related to President Trump's policy plans. However, Federal Reserve Bank of Chicago President Austan Goolsbee cautions against relying solely on consumer sentiment surveys due to their short-term focus.
Goolsbee emphasizes the importance of monitoring market-based measures of inflation, such as the 10-year breakeven inflation rate, which has remained relatively stable within a range of 2% to 2.4%.
Overall, the February preliminary reading fell to 67.8, below expectations and reflecting weaker consumer demand, inflation concerns, and economic growth. The current conditions index also declined, largely due to declining buying conditions for durables. The survey acknowledges the potential impact of tariff policies on consumer sentiment.
Despite the decline in sentiment, the January jobs report indicated a decrease in unemployment and solid gains in various sectors.