The consumer sentiment index inched down to 67.2 in January from 70.6 in December as concerns over the omicron variant’s surge weighed on consumers both now and in the future, according to a report from the University of Michigan on Friday.
The index—known for its strong dependence on gasoline prices—was also affected by the rising cost of gasoline in January as most consumers continued to expect prices to increase in the next 12 months.
Omicron fears also put more pressure on spending, which has been pulled back since late December. All subindexes for consumer buying intentions for homes, vehicles and major household items dropped on the month.
Another reason for such declines in purchase intentions continued to be high inflation, which remained the biggest problem for the economy, according to three-quarters of surveyed respondents.
Inflation expectations ticked up in January to 4.9% for the one-year expectation—the highest since 2008—and to 3.1% for the 5- to 10-year expectation—the highest since 2011.
According to the report, the concern is that consumers may misinterpret the Federal Reserve’s policy move to tame inflation as part of the problem rather than part of the solution because higher interest rates might dampen demand and income.
Such a trade-off between controlling inflation by slowing down the heated economy should be communicated clearly to consumers besides whatever signal the Fed has been giving with its monetary policy.
The takeaway
The next couple of months will most likely see more downside risks on consumer sentiment as inflation remains elevated and the risk of a geopolitical conflict rises which will certainly drive up energy prices.
