Inflation Worries Drive Consumer Sentiment to Lowest Level in Seven Months
The University of Michigan's latest consumer sentiment survey revealed a significant decline in February, reaching its lowest point since October 2023. This pessimism stems from concerns over rising inflation, with one-year inflation expectations surging to 4.3% from 3.3% in January.
The sharp increase in inflation expectations marks the highest reading since November 2023 and the second consecutive month of "unusually large" increases. It also represents only the fifth time in 14 years that the survey has recorded such a significant one-month rise in year-ahead inflation expectations.
Assistant economist at Capital Economics, Ruben Abargues, attributed the uptick to "consumers increasingly concerned about the potential stagflationary effects of President Donald Trump’s policy plans."
However, Federal Reserve Bank of Chicago president Austan Goolsbee emphasized the importance of relying on market-based data, dismissing the survey's sharp increase as reflecting short-term expectations. He highlighted that long-run market-based measures of inflation remained anchored at the target of 2%.
The 10-year breakeven inflation rate, for instance, stood at 2.42% as of Thursday, within a stable range between 2% and 2.4% for the past two years.
Overall, the February preliminary sentiment reading dropped to 67.8, below expectations of 71.8. The current conditions index declined by 7.2%, primarily due to a drop in buying conditions for durables, reflecting concerns over the impact of tariff policies.