Consumer inflation expectations surged to their highest level in over two years, according to the latest University of Michigan consumer survey. Year-ahead inflation expectations jumped from 4.3% last month to 5.0%, marking the highest reading since November 2022.
- This marks the third consecutive month inflation expectations increased by 0.5 percentage points or more.
- Long-term inflation expectations climbed sharply from 3.5% in February to 4.1% in March, matching highs observed in 2022 and 2023.
Consumer sentiment took a major hit, falling nearly 12% from February to an index reading of 57, the lowest since July 2022.
- Consumer expectations fared even worse, plunging 18% to 52.6 in March—the lowest reading since mid-2022.
Bad All Around: The report emphasized the broad-based nature of the downturn, noting, “This month’s decline reflects a clear consensus across all demographic and political affiliations.”
- Republicans joined independents and Democrats in expressing worsening outlooks for personal finances, business conditions, unemployment, and inflation.
What They’re Saying: Heather Long, economic report at the Wasington Post, noted the impact tariffs are having on consumer sentiment: “Inflation expectations are surging due to Trump’s tariffs. I continue to think the Trump team is really misreading how different 2025 is compared to 2017/2018. People are watching prices closely now.”
- Robin Brooks, Senior Fellow at the Brookings Instiute, did have some possible good news on Twitter, “There’s changes to the survey methodology for the University of Michigan surveys that may have boosted Democrats versus Republicans in the responses, but – nonetheless – the spike in long-term inflation expectations is really quite shocking. Likely noise, but still…“
Bottom Line: Even if you remove the possible political bias, things are not looking good. Consumer expectations for independents fell to the lowest level since May 2023. If tariffs are implemented and aren’t as bad as economists think, then things could quickly reverse. However, if prices rise and the economy slows then things are gonna get worse before they get better.