The University of Michigan consumer sentiment index fell in March to 57.9 from 64.7.
The last time the index was this low, inflation was still running above 4%. The uncertainty around tariffs and the significant drop in asset prices are clearly affecting consumers.
Most notably, inflation expectations worsened, with the 12-month gauge advancing to 4.9% and the five-to-10-year metric increasing to 3.9%.
Although the University of Michigan’s inflation expectation indexes represent only a small portion of overall market expectations, the sharp increases in March are noteworthy. The 12-month expectation was the highest since 2022, when inflation reached its post-pandemic peak.
Consumers seem to have lost confidence in how the government is handling inflation. The subindex for consumers’ opinion of the government’s inflation policy fell to the recent low of 2022.
Sentiment data is often subjected to fluctuations that might not represent the true underlying strength of the economy.
But we have argued that if sentiment remains sour for too long because of inflation expectations, it could become self-fulfilling, adding upward pressure on real prices on the shelves.
Read more of RSM’s insights on the economy and the middle market.
