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Consumers haven’t felt this bad about the economy and their personal finances since 2011, according to the latest reading of the University of Michigan Sentiment index. The index dropped from 65.2 to 59.1 in May, reaching the lowest level since the eurozone sovereign debt crisis and the bottom of the housing market more than a decade ago.
The survey showed that most consumers, or 36%, were feeling sour because of high inflation. Consumers expect inflation to average 5.4% over the next year, up from 4.6% a year ago.
The poor showing for sentiment came as no surprise to markets, which had been grappling with inflation concerns of their own.
On Wednesday, the Bureau of Labor Statistics said that consumer prices in the U.S. had risen by 8.3% year over year in April, down from 8.5% in March, but still much too high for comfort. Following the release of the figures, the SPDR S&P 500 ETF Trust (SPY) dropped by 1.6%.
University of Michigan Consumer Sentiment Index
On the plus side, consumers seem to be attributing the current levels of inflation to temporary factors. The University of Michigan Sentiment survey indicated that long-term inflation expectations were 3%, similar to the expectations consumers had a year ago.
That also matches the 2.7% inflation rate that Treasury bond markets are pricing over the next 10 years.
Though little solace in the current environment, the data should give policymakers, including the Fed, confidence that inflation expectations haven’t run away to the upside.
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