October Consumer Sentiment Plunges Amid Rising Inflation Fears

Highlights

• Consumer sentiment falls 7% in October
• Year-ahead inflation expectations rise to 3.8%
• Nearly all demographics affected by sentiment downturn

Consumer Sentiment Takes a Hit, Inflation Fears Loom Large

Consumer sentiment has taken a nosedive this October, tumbling 7% as inflation fears grip the psyche of American consumers. The decline is noteworthy given the prior stability of sentiment for two consecutive months. Adding to the gloom, assessments of personal finances have retreated by a whopping 15%, primarily fueled by growing concerns about inflation. As if that wasn’t unsettling enough, expectations for business conditions over the next year have plummeted 19%.

Inflation Concerns Reach New Heights

Year-ahead inflation expectations have surged from 3.2% to 3.8%, marking the highest level since May 2023. This figure far outstrips the 2.3-3.0% range that was the norm before the pandemic hit. The upward trend signals that inflation remains a critical variable shaking consumer and market confidence.

Long-Run Inflation Expectations Stable Yet Elevated

In contrast, long-term inflation expectations have edged up marginally from 2.8% to 3.0%. Although a smaller increase, this rate has been in the 2.9-3.1% band for most of the past 27 months, which still sits higher than the 2.2-2.6% range observed in the pre-pandemic period.

Demographic Groups Reflect Universal Concern

The sentiment downturn is all-encompassing, affecting nearly every demographic group. This indicates a universal worry over the economy’s current trajectory, despite long-run expectations suggesting that this downturn is likely a temporary blip rather than a long-term trend.

Short-Term Forecast: Bearish on Consumer Sentiment

Given the confluence of adverse factors such as rising inflation expectations and declining views on personal finances and short-term business conditions, the outlook for consumer sentiment in the immediate future appears bearish. While long-term business expectations remain relatively stable, the short-term concerns are likely to weigh down sentiment further, at least in the immediate quarter ahead.