Inflation dampens consumer confidence

Consumer sentiment remains stunted amid stubbornly high inflation rates and fears of rising unemployment, according to February’s University of Michigan Surveys of Consumers

The Index of Consumer Sentiment increased 1.5 points to 66.4. The index, which has increased 6 percent over the last 12 months, remains 14 percent below February 2021 and 22 percent under its 45-year average. 

Consumer spending is expected to fall in the coming months as consumers brace for high prices and increased unemployment. “Recent developments in the economy, both positive and negative, have led to mixed attitudes among consumers with little net change in February,” said Surveys of Consumers Director Joanne Hsu. 

 February’s Current Economic Conditions index increased 6 percent to 72.6. Year-ahead inflation expectations increased to 4.2 percent this month from 3.9 percent in January. Long-run inflation expectations remained at 2.9 percent for the third straight month. 

The Consumer Price Index increased 0.5 percent in January and has risen by 6.4 percent since January 2022. Though the annual increase was the lowest in more than a year, inflation remains stubbornly high, leading the Federal Open Market Committee to continue to raise interest rates. According to Reuters, the Fed is expected to raise interest rates at least twice more in coming months, bringing the peak rate to at least 5.00 to 5.25 percent. A majority of economists in a recent poll expect no rate cuts before the end of 2023.