Consumer sentiment drops to a decade low as inflation fears mount

A recent survey by the University of Michigan found that Consumer confidence It fell to a new low in a decade due to concerns economic inflation Growing Amidst the Constant Russian Invasion of Ukraine.

The University of Michigan Consumer Confidence Index (MCSI), a monthly survey of how consumers feel about the economy, personal finance, business and purchasing conditions, ended March 2022 at 59.4%, down 5.4% from the final reading of 62.8% in February 2022 and down by 5%. 30.0% from the index’s reading of 84.9% a year ago in March 2021.

The end-March reading of 59.4% is down 0.5% from a decade-low of 59.7 hit in mid-March.

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Policymakers should consider the Russian invasion of Ukraine, which began on February 24 and entered its 32nd day on Sunday, said Richard Curtin, chief economist at the University of Michigan Consumer Survey, a major source of ongoing economic disruption, with the spread of the new COVID-19. Variables are also somewhat of a secondary factor.

The survey found that inflation was the main reason for the increase in pessimism, with an inflation rate for next year expected at 5.4%, the highest since November 1981.

When consumers were asked to explain changes in their financial conditions in their own words, more consumers mentioned lower living standards due to higher inflation than at any other time except for the worst recession in the past 50 years: from March 1979 to April 1981, and from May through October 2008 ‘ said Curtin. Moreover, 32% of all consumers expected their overall financial situation to deteriorate in the next year, the highest level recorded since surveys began in the mid-1940s.

Curtin assessed that the combination of higher prices and a less positive income outlook means that half of all households expected declines in inflation-adjusted income in the next year.

The only area of ​​the economy where consumers remained optimistic was the labor market, where 30% of respondents in March predicted that over the next year, the unemployment rate was likely to decline further compared to 24% of respondents who expected an increase.

“Strong job growth will continue to put upward pressure on wages, leading to higher incomes and stronger job prospects,” Curtin said. “This force will then expand consumer demand and eventually lead to another cycle of price and wage increases. These factors represent the necessary (but not sufficient) conditions for the development of inflationary psychology as a self-fulfilling prophecy.”

He further assessed that “prevention of inflationary psychology is much less costly before it becomes ingrained in the economic behavior of consumers and firms”. While confidence that economic policies will solve the problem is essential, Curtin notes unfortunately, half of consumers rate current policies negatively, and more than three times the 16% who rate them positively.

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According to Investopedia, many consumers are concerned that the Federal Reserve has failed to act appropriately on the chances of nipple inflation in its early stages. MCSI assessed in mid-January that respondents’ confidence in government policies had fallen to its lowest level since 2014.

The results of the MCSI end of March ranked the current economic conditions at 67.2%, which is a 1.5% decrease from 68.2% in February, and a 27.7% decrease since last year in March 2021. The end of March, down 8.6% from February 59.4% and a decrease of 31.9% from last year in March 2021.