Inflation Expectations Jump to 30-Year High, Consumer Confidence Falls

Customers wait in line to check out at a Costco store in Novato, Calif., on Dec. 11, 2024. Justin Sullivan/Getty Images

U.S. consumer confidence tumbled to a 15-month low in February, as inflation fears surged and expectations for both the broader economy and personal finances deteriorated.

The University of Michigan’s consumer sentiment index, released on Feb. 21, dropped to 64.7 in February, down from 71.7 in January, marking the lowest level since November 2023. The final reading represented a downside surprise, coming in below both the preliminary estimate of 67.8 and economists’ expectations, signaling greater pessimism among consumers.

All components of consumer sentiment declined, with buying conditions for durable goods plunging 19 percent, largely due to concerns over tariff-driven price hikes. Expectations for personal finances and the short-term economic outlook fell nearly 10 percent, while the long-term outlook hit its lowest level since November 2023.

Inflation expectations also rose sharply, fueled by fears that President Donald Trump’s plans for steep and broad-based tariffs would drive up costs and erode purchasing power, according to Joanne Hsu, director of the University of Michigan’s Surveys of Consumers.

Households expect year-ahead inflation to rise to 4.3 percent, the highest since November 2023 and up from 3.3 percent last month, per the report. Five-year inflation expectations climbed to 3.5 percent, up from 3.2 percent in January and the highest reading since 1995.

Trump has acknowledged the recent uptick in inflation, which accelerated in January to a seven-month high of 3 percent, marking the fourth consecutive monthly increase. The president blames the previous administration, saying that inflation is a lingering effect of what he describes as reckless spending under President Joe Biden.

“Inflation is back,” Trump told Fox News during an interview alongside tech entrepreneur Elon Musk that aired on Feb. 18. “I’m only here for two and a half weeks, and they said, ‘Oh, Trump inflation’ and I had nothing to do with that.”

“They spent money like nobody has ever spent,” Trump continued. “They were given $9 trillion to throw out the window.”

In a separate Feb. 21 interview with Fox News, Trump was asked when Americans could expect his economic policies to take effect.

“Inflation is stubborn, you inherited it,” Brian Kilmeade said. “When does it become your economy? When is it a Trump economy, when will we get to see if your plans are working?”

Trump replied: “Well, it takes a period of six months to a year. Biden really screwed up our country.”

With tackling high prices being one of his key campaign promises, Trump in December said that it would be “very hard” to bring inflation down fast. In a December interview with Time magazine, he outlined a strategy focused on a combination of increasing domestic energy production to lower costs, addressing supply chain bottlenecks to boost efficiency, and encouraging domestic production through incentives and tariffs.

Beyond consumer sentiment, recent data from S&P Global show that U.S. business activity weakened sharply in February. The S&P Global Composite PMI fell to a 17-month low, with the services sector dropping to a 25-month low. While manufacturing output rose, it was largely driven by preemptive stockpiling ahead of expected tariff-related cost increases, suggesting a temporary boost rather than sustainable growth.

“The upbeat mood seen among U.S. businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

Companies cited concerns over federal policies, tariffs, and spending cuts, with new order growth weakening sharply and business optimism slumping. Manufacturers reported steep increases in input costs, primarily due to tariff-related supplier price hikes and rising wages.

Despite these pressures, competition in the services sector kept selling prices in check, pushing service-sector inflation to a near five-year low.

With Trump indicating that his policies may take time to kick in and have an impact on inflation, the near-term economic landscape appears challenging, with rising costs and policy uncertainty shaping the outlook.