Inflation Fears Surge As Economic Expectations Plunge

Americans grew more pessimistic about the economy in September as inflation expectations surged and consumers braced for higher fuel prices and renewed trade tensions, according to data released Friday.

The University of Michigan’s Index of Consumer Sentiment fell to 48.1 in September, down 7% from August and 12.7% from a year earlier, according to the university’s final September survey. The deterioration was concentrated in consumers’ outlook for the future, with the Index of Consumer Expectations plunging 10.1% in a single month to 46.3, while views of current economic conditions slipped just 1.9%.

Inflation fears also accelerated sharply. Consumers expected prices to rise 4.6% over the next year, up from 4.0% in August and the highest reading since June. The reading was also well above the 3.4% recorded in February before the Iran conflict began.

Inflation expectations can influence future inflation. Businesses and workers can respond to expectations of higher prices by adjusting prices and wages, potentially reinforcing inflation, according to the Federal Reserve.

The Fed closely watches whether inflation expectations remain anchored for that reason. Expectations that become persistently elevated can contribute to a self-reinforcing cycle in which anticipation of higher inflation affects economic behavior and helps push actual inflation higher. (Read more from “Inflation Fears Surge As Economic Expectations Plunge” HERE)