US Consument Sentiment Falls To Lowest Level In A Decade As Confidence Wanes Over Inflation

Consumer sentiment among Americans saw a big drop in the last month as confidence plummeted. For many, rising prices are here to stay.

On Friday, the University of Michigan's index for consumer sentiment fell to 61.7 from 67.2, a drop of 8.2% from last month and 19.7% from last February, a sign that Americans' expectations of better economic conditions are sagging. This was also reflected in the measurement for assessing current economic conditions, which fell 4.9% to 68.5, while the index for consumer expectations recorded a larger plunge of 10.5% in the last month.

“The recent declines have been driven by weakening personal financial prospects, largely due to rising inflation, less confidence in the government's economic policies, and the least favorable long-term economic outlook in a decade," said Richard Curtin, the chief economist for the survey.

These results signal that U.S. consumers are pulling back on spending because of higher prices, but the survey made clear that there were clear caveats to be kept in mind. Some are the impact of unspent stimulus funds, the partisan distortion of expectations, and the pandemic's disruption of spending and work patterns. It also notes that households accrued more savings thanks in part to stimulus checks from earlier federal relief bills that could be channeled into more discretionary spending.

Between the pessimism gripping many American households and the loss of faith in the government, President Joe Biden’s administration has been painted into a difficult corner. The president’s prediction last year that inflation would be temporary has been flatly contradicted by a surge in core inflation in the last quarter of 2021.

In a recent interview with NBC News, Biden stuck to his view that inflation would taper off in 2022, but this is likely to be a difficult sell to Americans who have rated his economic policies poorly.

The Federal Reserve, meanwhile, is moving to cut down inflation by turning the taps off on the last two years of stimulus spending in March. Like the White House, the Fed too believed inflation would be temporary but recent inflation data has pushed the central bank in the direction of raising interest rates to fight rising prices.