Consumers are deeply worried about inflation: survey
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Another month, another terrible reading on consumers' attitudes toward the economy — and the data contains a stark warning for the Federal Reserve on Americans' expectations for inflation over the long run.
Driving the news: The University of Michigan's consumer sentiment index fell sharply to a new all-time low in May, at 44.8, from 49.8 in April.
- Long-run inflation expectations soared to 3.9% in May from 3.5% in April, well above the Fed's target and above the range where they hovered in 2024.
- The plunge in attitudes — to levels not seen in data collected consistently since the late 1970s — reflected profound dissatisfaction over the cost of living, particularly since the Iran war and subsequent rise in gasoline prices.
- The declines in sentiment were broad-based, but steepest among lower-income consumers and those without college degrees.
What they're saying: "The cost of living continues to be a first-order concern," survey director Joanne Hsu says in the report, "with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month."
- "Critically, consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run."
Of note: Sentiment decreased among independents and Republicans to the lowest readings of President Trump's current term.
- Among Republicans, long-run inflation expectations have more than doubled since February 2025.
Between the lines: Even though inflation has been above the Fed's target for more than five consecutive years, the central bank's leaders have taken solace in the fact that longer-term inflation expectations remained anchored.
- With the new Michigan survey, combined with a recent surge in inflation rates priced into bond markets, that confidence is being tested.
- When inflation expectations rise, it can create a self-fulfilling pattern in which companies charge higher prices, workers demand higher wages and consumers lose confidence that prices will remain stable.
The bottom line: The unemployment rate is relatively low, the stock market is at new highs, and inflation isn't as bad as it was a few years ago. But Americans' view of the economy is overwhelmingly negative.
