41 Year High Inflation Expectations Pummel Consumer Sentiment

Consumer sentiment sank in early March to the worst level since 2011 and year-ahead inflation expectations rose to a 41-year high.

The University of Michigan’s said its consumer sentiment index dropped to 59.7 from 62.8 in February. The median estimate of analysts in Econoday’s survey called for a reading of 61.7 following February’s 62.8.

Consumers expect prices to rise 5.4 percent over the next year, the highest reading since 1981, according to the data. That’s suggests that inflation may have accelerated further in early March and that higher gasoline prices are significantly moving expectations.

The index was much higher a year ago, with a reading of 84.9 in March 2021, as vaccines began to roll out and the public expected a quick exit from the pandemic. Inflation was tame, with the consumer price index up just 1.7 percent compared with prior February level and rising 0.4 percent in the month after 0.3 percent in January.

On Thursday, the Department of Labor said the consumer price index had soared 7.9 percent in the 12-months since then and jumping 0.8 percent compared with the prior month.

The index of consumer sentiment was up at 101.0 registered before the Covid-19 pandemic.

“Consumers held very negative prospects for the economy, with the sole exception of the job market,” said Richard Curtin, the survey’s chief economist. “Consumers were slightly more likely to anticipate declines rather than increases in the national unemployment rate.”

For the next five years, consumers expect prices to rise 3 percent, unchanged from February. Expected gas prices posted their largest monthly upward surge in decades, Mr. Curtin said.

The conflict in Ukraine is front and center in the minds of many consumers. Twenty-four percent all respondents in March’s survey spontaneously mentioned the Ukraine invasion in response to questions about the economic outlook.

The measure of current economic conditions slumped to 67.8 in March, the lowest since the aftermath of the global financial crisis in 2009. The highest-ever share of households expect their finances to worsen in the coming year.

The survey’s gauge of future expectations declined to 54.4, the weakest since 2011.

Consumer sentiment dipped across political lines, with gauges of both current conditions and expectations falling for Democrats, Independents, and Republicans. The readings of current conditions and expectations among Democrats are the lowest of Joe Biden’s presidency.