Consumer sentiment has fallen significantly over the last 12 months due to continued inflation, higher fuel prices and Russia’s recent invasion of Ukraine, according to the University of Michigan’s monthly Surveys of Consumers.
The Index of Consumer Sentiment, which dropped three points this month from an already record low level in February to 59.7, has fallen nearly 30 points from March 2021 as inflation continues at a decades-high pace and the war in Eastern Europe brings concerns that the global economy will worsen. Federal Reserve Chair Jerome Powell said earlier this month that Russia’s key role in global commodities such as oil would likely send gas prices higher, though he didn’t know for how long. In January, U.S. inflation was measured at 7.5 percent.
“Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940s,” the report stated. “Consumers held very negative prospects for the economy, with the sole exception of the job market. Consumers were slightly more likely to anticipate declines rather than increases in the national unemployment rate.”
The Index of Consumer Expectations was measured at 54.4 this month, a five-point drop from February and a 31.7 percent decrease from March 2021. The drop was much more pronounced for those who held higher inflation expectations — 33.5 index points for those who predicted less than 5 percent compared to those who expected more. The Current Economic Conditions index, though only dropping by less than a point this month to 67.8, is still 27 percent lower than last March’s reading of 93.
The report was written by Surveys of Consumers Chief Economist Richard Curtin. He said current expectations indicate “heightened pressure on wages to meet the continued growth in demand. Like the game of musical chairs, everyone continues racing around the circle of rising prices and higher wages. Although everyone knows the game will end, everyone still wants to obtain the highest income possible before they exit.”