Consumer Confidence Slips as Inflation Expectations Jump

People shop at a grocery store in New York City on Aug. 14, 2024. Spencer Platt/Getty Images

Confidence among American consumers fell in February to a seven-month low as inflation expectations surged, according to the University of Michigan’s Surveys of Consumers, underscoring household concerns that price pressures may take longer to dissipate.

The University of Michigan’s consumer sentiment index fell to 67.8 from January’s 71.1, the lowest since July 2024, according to data released on Feb. 7.

“The decrease was pervasive, with Republicans, Independents, and Democrats all posting sentiment declines from January, along with consumers across age and wealth groups,” Joanne Hsu, director of Surveys of Consumers, said in a statement.

Meanwhile, households’ expectations for inflation over the next year jumped to 4.3 percent—the highest level since November 2023—up from 3.3 percent in January. Over the next five years, they anticipate inflation averaging 3.3 percent, marking the highest reading since June 2008, up slightly from 3.2 percent last month.

Hsu noted that a one-point rise in one-year inflation expectations is rare, occurring only five times in 14 years. The surge could complicate the Federal Reserve’s efforts to bring inflation back to its 2 percent target and reinforces the narrative that the central bank will hold interest rates higher for longer. On the day that the University of Michigan’s inflation expectations data was released, the probability that the Fed will holds rates steady at its next meeting in March jumped from 84 percent to 92 percent, per the CME Fed Watch tool, bolstering the higher-for-longer view.

All five components of the consumer sentiment index declined, with a 12 percent drop in durable goods buying conditions, according to the University of Michigan data. Hsu attributed this in part to concerns that it may be too late to avoid the potential negative impacts of the Trump administration’s tariff policies.

Analysts have warned of inflationary effects and risks to economic growth from President Donald Trump’s tariff plans, though the extent of the impact is unclear. The nonpartisan Congressional Budget Office estimates that the impact of tariffs on inflation and output would be modest, while their potential to reduce deficits would be significant.

Trump, who called himself “Tariff Man” in 2018, has long promoted tariffs to protect U.S. industries, bring back manufacturing jobs, and address America’s nearly $1 trillion trade deficit with the rest of the world.

In his first term, he used tariffs to renegotiate trade deals he viewed as unfair. During his 2024 campaign, he proposed an “all tariff policy” to replace income tax with tariff revenue. After winning a second term, Trump moved to establish the External Revenue Service (ERS) for tariff collection and swiftly imposed 10 percent tariffs on Chinese imports and 25 percent duties on Canadian and Mexican goods—pausing the latter for 30 days after securing border security concessions.

As for the inflationary impacts of tariffs, Trump has acknowledged there might be some “pain” to bear, but that the impact of tariffs over the long-term would be beneficial.

“Will there be some pain? Yes, maybe (and maybe not!),” Trump wrote in a recent post on Truth Social. “But we will Make America Great Again, and it will all be worth the price that must be paid.”