As Inflation Surges, Consumer Sentiment Falls to Decade Low

January 28, 2022

Surging inflation and the omicron variant had U.S. consumers feeling more pessimistic in January, with the University of Michigan’s consumer sentiment index falling to the lowest level in more than a decade.

The index fell to 67.2 in the final reading, down from 70.6 a month prior and below economist projections. This marks the lowest level since November 2011.

The portion of the index that gauges consumers’ view of current conditions fell to 72, the lowest level since August 2011. Consumers’ expectations for future economic conditions fell to 64.1.

Half of the households surveyed said they think the economy started the year in a weakened state and just a third expect it to improve in the year ahead. Three-quarters of Americans said inflation was the biggest problem for the economy. Consumers expect inflation to rise 4.9% over the next year, the highest consumer expectation since 2008.

We may be already seeing the consumers rein in their spending as confidence wanes and prices climb. Consumer spending declined by 0.6% in December, the first decrease since last winter, according to the Commerce Department. Meanwhile, the Commerce Department’s personal-consumption-expenditures index, which is the Federal Reserve’s preferred inflation gauge, saw core inflation climb 4.9% from a year earlier in December, the fastest annual increase since 1983.

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