Consumer Sentiment Dips in September Amid Inflation Woes

In September, Americans seemed to become more negative about the economy. Rising inflation expectations, along with worries about increasing fuel costs and fresh trade tensions, played a significant role in this shift, as indicated by data shared on Friday.

The University of Michigan’s Index of Consumer Sentiment dropped to 48.1, which is a 7% decrease from August and a notable 12.7% decline compared to a year ago. This decline was predominantly influenced by consumers’ outlook for the future; in fact, the Index of Consumer Expectations fell sharply by 10.1% in just one month, reaching 46.3, while current economic conditions saw a slight dip of only 1.9%.

Inflation concerns are becoming more pronounced. Consumers now expect prices to rise by 4.6% over the next year, up from 4.0% in August, marking the highest forecast since June. This figure is notably higher than the 3.4% expectation recorded in February, just before the onset of the Iran conflict.

Such expectations can have a significant impact on future inflation. According to the Federal Reserve, both businesses and workers may adjust their pricing and wage strategies based on anticipated price increases, possibly further fueling inflation.

The Fed is particularly attentive to whether inflation expectations remain stable, as prolonged high expectations might lead to a cycle where the anticipation of inflation influences economic behaviors, subsequently pushing actual inflation even higher.

In the long run, inflation expectations have edged up to 3.4%, a slight increase from 3.3%, effectively breaking a three-month streak at 3.3%. This figure is still above the 2024 range of 2.8% to 3.2%.

Joanne Hsu, Director of Surveys of Consumers, noted that while consumer sentiment dipped by less than four points in September, it nonetheless reached its lowest level in four months. Consumer perspectives regarding their current and future personal finances declined further during this period, with heightened anxiety surrounding rising prices. Additionally, the short-term outlook for business conditions has soured significantly, as consumers worry that increased fuel prices and escalating trade concerns might negatively impact the broader economy.

The university’s September chart indicated that both gasoline prices and tariffs were contributing factors to shifts in consumer inflation expectations.

Economic skepticism was felt across different political affiliations. By September, Republican consumer expectations had plummeted 28% from their February 2025 levels. Meanwhile, independent expectations fell 22%, and Democratic expectations decreased by 13%.

Overall sentiment among Republicans has diminished by 20% since January, while Democrats saw a 13% decline over the same timeframe.

Despite the overall negative trend, consumers reported somewhat improved conditions for purchasing durable goods. Some survey participants indicated that buying sooner may help them avoid higher prices in the future.

The final sentiment reading of 48.1 was a bit higher than the university’s preliminary estimate of 47.8 for September. However, it still fell considerably short of August’s reading of 51.7.

The University of Michigan plans to release its preliminary consumer survey for October on October 9.