(May 22): US consumer sentiment fell in May to a record low and long-term inflation expectations worsened notably due to the Iran war.
The University of Michigan’s final May sentiment index decreased five points to 44.8 from April, according to the survey released on Friday. The gauge was weaker than all projections in a Bloomberg survey of economists as well as the preliminary reading of 48.2.
Consumers expect prices to rise an annualised 3.9% over the next five to 10 years, up from 3.5% in April and the highest in seven months. They also saw costs advancing 4.8% over the next year.
Gasoline prices hovering near the highest since 2022 are compounding Americans’ concerns about the cost-of-living and the absence of a deal to end the war. The toll of inflation on household budgets, particularly for lower-income consumers, poses a risk to the spending outlook.
“The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month,” Joanne Hsu, director of the survey, said in a statement.
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So far, consumer spending has proved resilient as the job market holds up and a stock-market rally bolsters wealth.
Gasoline prices have been above US$4.50 a gallon since early this month, according to American Automobile Association data. The price of regular gasoline is up more than 50% since the start of the Iran war at the end of February.
“Critically, consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run,” Hsu said.
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The spike in longer-run inflation expectations reflected increases among Republicans and political independents, the report showed. Sentiment among those groups also reached the lowest readings in Donald Trump’s second term as president.
One positive from the report was that expectations for the labour market are holding up.
The current conditions gauge dropped to 45.8, while the expectations index slid to 44.1 — both the lowest on record.
Consumers’ perception of their financial situation matched the lowest on record. The survey period included responses from April 21 to May 18.
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