The University of Michigan consumer sentiment survey showed a third straight monthly decline in the overall index to a record low. Inflation expectations increased as the Iran war and continued closure of the Strait of Hormuz kept energy prices elevated. Consumers’ year-ahead inflation expectations rose to 4.8% from 4.7%, exceeding the 3.4% level seen before the war began. Long-run inflation expectations climbed to 3.9% in May from 3.5% in April, above the 2024 range of 2.8% to 3.2%. The rise was driven by independents and Republicans, suggesting skepticism among Trump’s supporters about near-term inflation relief. The change indicates concern that inflation will spread beyond fuel prices and persist, potentially undermining confidence and reinforcing higher inflation through wage demands.
"In addition to the overall index falling for the third straight month to a fresh record low-even undercutting the levels seen during the 1970s oil crisis-inflation expectations rose as the Iran war and the continued closure of the Strait of Hormuz keep energy prices high."
"Consumers' year-ahead views inched up to 4.8% this month from 4.7% last month, further exceeding the 3.4% reading seen in February just before the war started. But more troubling was that long-run inflation expectations jumped to 3.9% in May from 3.5% in April, well above 2024's range of 2.8% to 3.2%."
"Critically, consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run,"
"From a central banker's point of view, this raises fears of a nightmare scenario where persistently higher inflation causes consumers to lose faith that it will eventually cool off. Such a shift in views can also perpetuate more inflation, especially if workers demand higher pay increases to offset expectations of more pri"
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