Consumer Sentiment Rose in May as Trade War Heated Up

Despite increased trade tensions between the U.S. and China, consumer sentiment improved in May.

The University of Michigan index of consumer sentiment index rose to 100 in May from 97.2 in April.

That was down from May’s initial estimate of 102.4 and slightly below the 101 level forecast by economists. Despite the decline, consumer sentiment remains at “very favorable levels,” according to Richard Curtin, the survey’s chief economist.

Claims that higher tariffs would raise consumer prices weighed on consumer sentiment in the latter half of the month. The outlook for inflation a year from now jumped to 2,9 percent, up from 2.5 percent a year ago.

“Year-ahead inflation expectations among those who unfavorably mentioned tariffs was 0.5 percentage points higher than those who made no references to tariff,” Curtin said. “Importantly, the gain in inflation expectations was recorded prior to the actual increases in consumer prices due to the most recent hike in tariffs.”

Despite tariffs on steel, aluminum, and around $250 billion of imports from China, inflation has not picked up over the past year. To the contrary, price increases have generally slowed down. According to the most recent data, year-over-year prices are up just 1.6 percent, below the Federal Reserve’s 2 percent target.