US consumer sentiment has reached its lowest level in nearly three years, with 12-month inflation expectations soaring to the highest level since 1981. The University of Michigan Surveys of Consumers reported a decline in sentiment to 50.8, down from 57.0 in March. This drop was more pronounced among Democrats and Independents, while morale among Republicans was also affected.
The increase in inflation expectations poses a dilemma for Federal Reserve officials, who have argued they remain anchored. President Donald Trump’s recent moves on import duties have raised concerns about inflation, with the White House’s tariffs campaign wiping out billions of dollars from retirement accounts and heightening uncertainty for businesses.
Consumers’ 12-month inflation expectations jumped to 6.7%, the highest reading since 1981, from 5.0% in March. Over the next five years, consumers saw inflation running at 4.4%. This persistent rise in inflation expectations could be problematic for US central bank officials.
The producer price index (PPI) fell 0.4% in March, with goods prices accounting for more than 70% of the decline. The drop was largely due to a 0.9% decrease in gasoline prices, amid worries that the tariffs tit-for-tat would slow global economic growth.
Economists expect the Fed to delay resuming cutting interest rates until later this year after pausing its easing cycle in January. Financial markets expect a rate cut in June. However, some economists suggest that the rise in long-term inflation expectations should catch the Fed’s attention, and keeping inflation expectations anchored is critical for the Fed.
The decline in consumer sentiment and increase in inflation expectations come as the US and China engage in escalating trade tensions. The situation has raised concerns about a potential recession and its impact on the labor market.
Source: https://www.reuters.com/markets/us/us-monthly-producer-prices-decline-march-2025-04-11