In a recent consumer sentiment survey conducted by the University of Michigan, the US near-term inflation expectations have spiked to a five-month peak, driven by concerns over escalating gas prices. The survey reveals that respondents anticipate a 4.2% annual increase in prices over the coming year, a significant uptick from the 3.2% reported in the previous month. This surge marks the highest inflation rate since June 2022, when inflation soared to an unprecedented 40%.
Moreover, respondents voiced predictions of forthcoming hikes in gas prices, foreseeing a potential hardship surpassing that of unemployment. More than 80% of respondents expressed the belief that inflation would lead to increased economic difficulties in the year ahead, with nearly half attributing the erosion of their standard of living to soaring prices.
Alongside mounting inflation concerns, the latest news regarding the Middle East conflict, House Speaker Mike Johnson’s inaugural significant bill, and the legal entanglements of former President Donald Trump have contributed to a dampening of consumer attitudes. Consequently, the sentiment index experienced a notable drop, plummeting by over four points to a reading of 63.8 in October. Both assessments of current economic conditions and future expectations exhibited declines.
This weakened consumer sentiment emerges on the heels of a recent report from the Federal Reserve, which indicated that its favored inflation gauge registered a sustained surge for the second consecutive month in September, driven in part by elevated energy costs. Analysts are now apprehensive that consumer spending might be tapering off, given that wages continue to lag behind inflation while student loan payments resume. Despite a robust surge in spending during the third quarter, sustaining this level of growth amidst the current economic landscape appears unlikely.
Joanne Hsu, director of the survey, remarked, “While consumers acknowledge that inflation has decelerated from its peak last summer, they cannot overlook the fact that their budgets remain strained and their purchasing power diminished. Nonetheless, robust income levels persist in bolstering aggregate spending.”
In light of these survey findings, Bloomberg Economics cautioned that the pervasiveness of inflation concerns is poised to exert prolonged pressure on consumer demands. Eliza Winger stated, “Coupled with a fourth consecutive dip in real disposable personal income, this will increasingly impinge on consumer demand.”
In conclusion, the surge in US near-term inflation expectations reflects a growing apprehension among consumers, highlighting the need for vigilant economic policies to mitigate potential hardships in the months ahead.
Source: Bloomberg
