US Consumer Sentiment Declines Amid Fuel Price Hikes and Cost-of-Living Concerns
US consumer sentiment dipped to near a record low in October, driven by rising prices linked to the ongoing conflict in the Middle East. According to a University of Michigan survey released on Friday, the Consumer Sentiment Index fell to 48.0, down from 48.1 in September. Economists had anticipated a lower reading of 46.3, which was also the preliminary estimate for October. This marks the second-lowest sentiment level recorded, following the all-time low of 44.8 in May.
“Purchasing power continues to dominate consumer views of the economy,” said Joanne Hsu, director of the Surveys of Consumers. The sentiment index is now 10% lower than a year ago and 15% below the level recorded in February, just before the conflict escalated.
Independent voters report weaker sentiment
The survey’s findings align with political polling indicating a negative outlook among voters regarding the economy and the handling of economic issues by President Donald Trump and the Republican Party. Millions of Americans have already participated in early voting ahead of the November 3 midterm elections, which will determine control of Congress for the remainder of Trump’s term. Current polls suggest that Republicans may lose control of the House of Representatives, with the Senate also potentially at risk.
The decline in sentiment was particularly pronounced among independent voters, whose sentiment score dropped to 42.4 in October from 47.7 in September, just above May’s record low of 40.6. In contrast, sentiment scores among Democrats and Republicans showed improvement. The survey also indicated that more independents and Republicans are citing high prices as a significant financial strain, with inflation pressures reported by independents rising by 27% since January and by 52% among Republicans.
Inflation expectations remain elevated
Consumers’ expectations for inflation over the next 12 months increased to 4.7% in October, up from 4.6% in September. This figure was 3.4% in February, prior to the onset of the US-Israeli conflict with Iran. Expectations for inflation over the next five years also rose to 3.5%, compared to 3.4% in September and 3.2% in March.
Hsu noted that persistently high inflation expectations following the Covid-19 pandemic pose a risk to the Federal Reserve’s goal of reducing inflation to its 2% target, a benchmark that has remained unmet for over five years. She cautioned that resilient consumer spending, despite negative economic perceptions, requires careful monitoring. If households are spending now to avoid future price increases, it could complicate efforts to lower inflation.
Federal Reserve decision due next week
Federal Reserve officials are set to meet in Washington next week. Despite recent inflation readings exceeding expectations, they are widely anticipated to maintain the policy interest rate at 3.75%-4.00%. The Fed raised the rate by a quarter of a percentage point in September, with most officials indicating a need for higher rates, while key policymakers expressed a willingness to await further data before making any decisions.
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