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Americans ’fears of rising inflation weigh on consumer sentiment, adding to concerns about how quickly the U.S. economy will be able to recover from the pandemic.
The University of Michigan Consumer Sentiment Survey fell to 82.8 in May, below April 88.3, as consumer attitudes about current and future conditions weakened. This compares with expectations for a closely watched indicator to reach 90.4, according to a survey by Reuters economists.
The decline in sentiment is a surprise: the rapid deployment of vaccines in the United States, a new reopening of the economy, and the distribution of stimulus controls were to increase consumer confidence.
“Consumers have begun to feel the skin of inflation and are concerned that the period of decades of low inflation we have experienced is over,” said Thomas Simons, a money market economist at Jefferies.
Respondents defined the conditions for buying long-term homes, cars and household items as the most negative “since the end of the last inflationary era of 1980,” said Richard Curtin, chief economist of the consumers.
Data released earlier this week proved it consumer prices had advanced at a rate of 4.2% during the twelve months of April, the largest increase since 2008. This rise has fueled concern that the US economy is warming as activity increases.
James Knightley, an economist at ING, said the recent cut in the Colonial conduct – a critical artery that supplies liquid fuels from oil refineries to US east coast states, which was closed for five days by a cyberattack – and later gasoline price hikes and panic buying it may also have “played a role.”
The Federal Reserve has repeatedly warned that any rise in inflation would be temporary, although rising prices pose a challenge for policymakers as they continue to bolster the economy with massive fiscal and monetary stimulus.
Investors were able to hear about the emergence of higher consumer price expectations from a number of Fed officials who are scheduled to speak next week. The messaging of policymakers will also be crucial in the coming months.
Falling consumer sentiment followed a report from the Commerce Department showing that retail sales came to an unexpected halt last month after a sharp rise in March, which had been fueled by stimulus controls and the reduction of blocking restrictions.
Sales of clothing, sporting goods, hobbies and books and online sales declined last month. Purchases of cars, spare parts and electronics increased and spending on bars and restaurants rose 3%, which meant a shift in spending on goods to services.
However, some economists predict the sharpest increase in consumer spending this year since 1946.
“It is important to note that consumer spending will continue to advance despite higher prices due to accumulated demand and record savings balances,” Curtin said.
“This combination of persistent demand in the face of rising prices creates the potential for an inflationary psychology, encouraging rational early purchase and rising wages in the cost of living,” he added.
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