US consumer sentiment has dropped to a seven-month low, according to the University of Michigan Surveys of Consumers. This decline is attributed to rising inflation expectations, which have surged to 4.3% for the next year – the highest since November 2023. Despite this increase, households still see inflation over the next five years at 3.3%, similar to last month.
The drop in consumer sentiment affects all age and wealth groups, as well as political affiliations. Even Republicans, who had previously shown improvement in their economic outlook after Trump’s election victory, now express a more pessimistic view of their situation.
Survey Director Joanne Hsu notes that the decline is widespread, with all five index components deteriorating due to concerns about the impact of tariff policy on buying conditions for durables. Personal finance expectations have also decreased by 6% from last month, reaching its lowest value since October 2023.
The surge in one-year inflation expectations marks a rare jump and may be concerning for Federal Reserve policymakers who are struggling to return annual inflation to their 2% target. With President Trump planning to announce new tariffs next week, households may feel it is already too late to avoid the negative effects on purchasing power from these measures.
Source: https://www.reuters.com/markets/us/us-consumer-sentiment-drops-inflation-expectations-surge-2025-02-07