Consumer Sentiment Dips Amid Rising Gas Prices and Inflation
Concerns over escalating gasoline prices and inflation have led consumer sentiment to plummet, reaching unprecedented lows. According to data released on Friday from the University of Michigan, the Consumer Sentiment Index dropped to 44.8 in May. This figure is lower than even the most pessimistic predictions from an Econoday survey of Wall Street economists and down from a preliminary reading of 48.2 earlier in the month.
Last month, the index stood at 49.8. It’s noteworthy that this decline has persisted every month since the onset of the conflict with Iran, which has pushed gas prices to multi-year highs, marking May as the third consecutive month of downturns.
Both present and future expectations in the index are expected to soften.
Joan Hsu, the research director, mentioned, “Consumer sentiment has declined for the third month in a row as gas prices continue to rise due to supply disruptions in the Strait of Hormuz. Sentiment is now just shy of the historic low we saw in June 2022.”
Hsu noted that living costs remain a primary worry, with 57% of consumers reporting that high prices are negatively impacting their finances—an increase from 50% in April.
He added, “Particularly, low-income consumers and those without a college degree have shown significant declines in sentiment. These groups tend to be more affected by rising prices of gasoline and other essentials. Independents and Republicans have also seen sharp drops in sentiment, hitting their lowest levels of the current administration. In contrast, Democratic sentiment has remained relatively stable since last month. Importantly, consumers seem to be worried about inflation extending beyond fuel prices in the long run.”
Looking ahead, consumers anticipate a 4.8% increase in prices over the upcoming year, a rise from the 4.7% forecasted in April. Similarly, long-term inflation expectations have surged, which could be troubling for Federal Reserve officials. Consumers expect prices to rise at an annual rate of 3.9% over the next five to ten years, up from 3.5% last month. Many Fed officials believe that these inflation expectations can significantly impact actual inflation.
