On Friday, the University of Michigan Surveys of Consumers released the consumer sentiment index for June 2022.
What Happened: The consumer sentiment index for June was 50.0, resulting in a -14.4% change since May, which was the lowest report on record.
The decline in consumer sentiment is broad based and impacted by current economic conditions and consumer expectations, according to the survey.
As the June 2021 consumer sentiment index was measured at 85.5, resulting in a -41.5% change year-over-year, we can infer consumer spending was also significantly higher then, contributing to rapid inflation growth.
According to the survey, “47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession.”
Why Consumer Sentiment Matters: The consumer sentiment index is an important indicator as it measures consumer confidence in regards to their financial situation and overall sentiment on the economy.
In March 2022, consumer sentiment declined to a measure of 59.4, while the consumer price index increased 1.2%. Higher consumer sentiment can contribute to higher inflation, yet this decline shows the impact inflation has on consumer spending.
Inflation Expectations: With the median expected year-ahead inflation rate little changed over the preceding four months at 5.3%, the survey said, long-term inflation is expected to settle in the range of 2.9%-3.1%. This is important as the Fed is targeting long run inflation to reach a benchmark of 2%.
Consumers have expressed high levels of uncertainty beginning in 2021 over long-term inflation that have not seen since 1991, the report said.
Dr. Joanne Hsu, director of the Surveys of Consumers, said: “79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009.”
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