Inflation fears cloud U.S. consumer sentiment

Americans’ fears of rising inflation are weighing on consumer morale, adding to concerns about how quickly the US economy will be able to recover from the pandemic.

The University of Michigan consumer sentiment survey fell to 82.8 in May, from 88.3 in April, as consumer attitudes to current and future conditions weakened . That compared to expectations for the closely watched gauge to hit 90.4, according to a Reuters poll of economists.

The drop in sentiment is a surprise – the rapid roll-out of vaccines in the United States, a further reopening of the economy, and the distribution of stimulus checks are all expected to boost consumer confidence.

“Consumers have started to feel the pinch in inflation and they are concerned about the end of the decades-long period of low inflation that we have experienced,” said Thomas Simons, money market economist at Jefferies.

Respondents to the survey rated the purchasing conditions for durable homes, cars and household items as the most negative “since the end of the last inflationary era in 1980,” said Richard Curtin, chief economist of the United States. consumer surveys.

Data released earlier this week showed that consumer prices had risen at a rate of 4.2 percent in the 12-month period ending in April, the largest increase since 2008. The rise has fueled fears that the US economy is overheating as activity intensifies .

James Knightley, economist at ING, said the recent outage of Colonial pipeline – a critical artery carrying liquid fuels from petroleum refineries to states along the eastern seaboard of the United States, which was closed for five days by a cyber attack – and thereafter rising gasoline prices and panic buying may also have “played a role”.

The Federal Reserve has repeatedly warned that any increase in inflation would be temporary, although rising prices pose a challenge for policymakers as they continue to support the economy with massive fiscal and monetary stimulus.

Investors could hear about the emergence of higher consumer price expectations from a series of Fed officials who are expected to speak next week. Messages from policymakers will also be crucial in the coming months.

The drop in consumer confidence follows a Commerce Department report that showed retail sales unexpectedly stagnated last month after a strong surge in March, fueled by stimulus checks and the easing of restrictions lock.

Sales at clothing, sporting, hobby and book stores, and online sales all declined in the past month. Purchases of cars, auto parts and electronics increased, and spending in bars and restaurants rose 3%, signaling a shift in spending from goods to services.

Still, some economists are predicting the biggest 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 pent-up demand and record savings balances,” Curtin said.

“This combination of a persistent demand in the face of rising prices creates the potential for an inflationary psychology, favoring the logic of purchasing in advance and increases in the cost of living of wages,” he said. added.

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