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U.S. consumer sentiment sinks as inflation expectations soar

UPDATED: Fri., March 11, 2022

A shopper walks out of a store at the Southland Center shopping mall in Taylor, Mich., on March 3, 2022.   (Bloomberg)
A shopper walks out of a store at the Southland Center shopping mall in Taylor, Mich., on March 3, 2022.  (Bloomberg)
By Emma Kinery Bloomberg

U.S. consumer sentiment tumbled in early March to the lowest since 2011 and year-ahead inflation expectations rose to a four-decade high in the aftermath of Russia’s invasion of Ukraine.

The University of Michigan’s sentiment index dropped to 59.7, from 62.8 in February, data released Friday showed.

The median estimate of economists in a Bloomberg survey called for a reading of 61.

Consumers expect prices to rise 5.4% over the next year, the highest reading since 1981, according to the data.

The report showed the highest-ever share of Americans expecting their finances to worsen in the coming year, evidence of the growing toll inflation is having on incomes.

Prices at the grocery store and gas pump were rising even before the war, which is now making those purchases that much harder.

A gauge of current conditions decreased to 67.8 in early March, the lowest since 2009.

The survey’s measure of future expectations declined to 54.4, the weakest since 2011. Inflation expectations over the next five to 10 years held at 3%.

That may offer some assurance since the Federal Reserve, who’s trying to keep long-term inflation expectations from spiraling out of control.

The central bank is likely to raise interest rates next week, its first hike since 2018.

“Expectations are sensitive to both the state of the stock market and gas prices, so we aren’t surprised to see this decline,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note. “It could easily have been bigger, and we are braced for a further drop next month.”

A third of respondents anticipated worsening finances, more than twice the year-ago share.

Some 54% see their incomes lagging inflation in the year ahead, which has only been topped six times since the mid-1970s.

A report Thursday showed consumer prices rose 7.9% in February from a year earlier, driven by higher costs for food, gas and shelter.

Separate data showed real average hourly earnings dropped 2.6%, the largest drop since May and the 11th straight decline.

It’s also feeding through to more disapproval over President Joe Biden’s agenda.

While Republicans have a more negative opinion, Democrats and political independents are growing increasingly pessimistic, the report showed.

Still, Americans are enjoying a strong labor market.

The U.S. added 678,000 jobs in February, on top of nearly half a million in the prior month.

Schools and local governments across the country are lifting Covid restrictions and mask mandates, perhaps signaling a return to normalcy.

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