Inflation expectations in the United States have risen, according to a recent survey conducted by the University of Michigan. Long-term inflation expectations increased to 3.0%, up from 2.9%, while short-term expectations for the year ahead rose to 3.8% from 3.2% the previous month. These figures indicate that consumers anticipate higher inflation rates in the coming months.
The survey also found that consumer price expectations remain anchored within the new post-pandemic range.[0] While long-term inflation expectations have risen from 2.8% to 3.0%, they have remained within the range of 2.9% to 3.1% for the past 27 months. This is higher than the average inflation expectations of 2.2% to 2.6% observed in the two years before the pandemic.[1]
Despite the increase in inflation expectations, consumer sentiment has declined. The University of Michigan's preliminary Index of Consumer Sentiment for October fell 7.5% from the previous month to 63, below the expected reading of 67.4.[2] This decline in sentiment is attributed to consumers' expectations of even higher impacts from inflation in 2024.
The decline in consumer sentiment is reflected in the overall economic outlook. The survey found that assessments of personal finances declined by 15% due to concerns over inflation, while expectations for business conditions one year ahead plunged by 19%.[3] However, long-term expected business conditions remained relatively unchanged, suggesting that consumers believe the current economic conditions will not persist in the long run.[3]
The decline in consumer sentiment is not limited to the University of Michigan survey. A separate survey conducted by the Siena College Research Institute found that consumer sentiment in New York state also fell by three points in the third quarter.[4] Concerns about food and gas prices were the main drivers of this decline in sentiment.
The decline in consumer sentiment and the rise in inflation expectations highlight the growing concerns among consumers about the state of the economy. Persistently high inflation rates and increasing prices for essential goods have taken a toll on Americans' attitudes.[5] This is particularly evident in the resumption of student loan payments, which has put additional financial strain on consumers.
However, it is important to note that consumer sentiment and expectations can fluctuate over time. While current sentiment may be gloomy, it is still above the all-time low recorded in June 2022 when inflation was at a four-decade high.[6] Additionally, long-term expected business conditions have remained relatively stable, suggesting that consumers have some optimism about the future.[7]
The impact of these changing sentiments on the broader economy remains to be seen. It is possible that consumer spending could be affected if individuals become more cautious about their finances due to high inflation rates. However, it is also possible that these concerns could be temporary and that consumer sentiment could improve as economic conditions stabilize.
Overall, the recent surveys indicate that consumers are increasingly concerned about inflation and its impact on their personal finances. As inflation expectations rise and consumer sentiment declines, it will be important to monitor how these factors influence consumer behavior and the broader economy in the coming months.
0. “UofM Consumer sentiment falls to 63, providing support for gold 2% gains” Kitco NEWS, 13 Oct. 2023, https://www.kitco.com/news/2023-10-13/Gold-price-holding-2-gains-as-UofM-Consumer-sentiment-falls-to-63.html
1. “Consumer Sentiment Falls Further than Expected as Inflation Fears Worsen” Investopedia, 13 Oct. 2023, https://www.investopedia.com/consumer-sentiment-preliminary-october-results-8357382
2. “U.S. consumer sentiment falls in October By Investing.com” Investing.com, 13 Oct. 2023, https://www.investing.com/news/economic-indicators/us-consumer-sentiment-falls-in-october-3198320
3. “US consumer confidence slips in October due to inflation worries, University of Michigan says” DIGITALLOOK, 13 Oct. 2023, https://www.digitallook.com/news/international-economic/us-consumer-confidence-slips-in-october-due-to-inflation-worries-university-of-michigan-says–14962144.html
4. “Consumer sentiment across NY drops in the latest Siena survey” WXXI News, 9 Oct. 2023, https://www.wxxinews.org/local-news/2023-10-09/consumer-sentiment-across-ny-drops-in-the-latest-siena-survey
5. “Americans are becoming more worried about inflation after resumption of student loans – Local News 8” LocalNews8.com, 13 Oct. 2023, https://localnews8.com/money/cnn-business-consumer/2023/10/13/americans-are-becoming-more-worried-about-inflation-after-resumption-of-student-loans/
6. “Americans are becoming more worried about inflation after resumption of student loans” WISH TV Indianapolis, IN, 13 Oct. 2023, https://www.wishtv.com/news/national/americans-are-becoming-more-worried-about-inflation-after-resumption-of-student-loans/
7. “US Consumer Sentiment Tumbles In October, Inflation Expectations Climb: ‘Setbacks In Sentiment' By Benzinga” Investing.com UK, 13 Oct. 2023, https://uk.investing.com/news/stock-market-news/us-consumer-sentiment-tumbles-in-october-inflation-expectations-climb-setbacks-in-sentiment-3190212
