Consumers report concerns over higher costs in key areas
Consumers are increasingly worried about inflation in the near term as president Donald Trump’s new tariffs on key US trading partners heighten economic uncertainty, according to a closely watched survey released Friday.
The University of Michigan consumer sentiment survey for February reported that inflation expectations for the next year rose to 4.3%, marking a 1 percentage point increase from January. According to a CNBC report, this represents the highest level since November 2023 and one of the most significant monthly spikes in recent years.
The survey results come as the administration enacts a 25% tariff on imports from Canada and Mexico, along with a 10% levy on Chinese imports. While the US and Mexico have reached a temporary agreement delaying the tariffs for one month in exchange for increased border security measures, the broader trade tensions have rattled consumers. China has responded with retaliatory tariffs, exacerbating concerns about rising prices.
Joanne Hsu, the director of the University of Michigan survey, highlighted the unusual nature of the jump in inflation expectations. “This is only the fifth time in 14 years we have seen such a large one-month rise in year-ahead inflation expectations,” she said.
Long-term outlook
Despite the heightened short-term inflation concerns, long-term expectations have remained more stable. The five-year inflation outlook edged up slightly to 3.3%, a modest 0.1 percentage point increase.
The broader sentiment index fell to 67.8 in February, a 4.6% decline from January and an 11.8% drop from the same period in 2024. Economists surveyed by Dow Jones had anticipated a reading of 71.3, indicating that the decline was steeper than expected.
“Higher prices from tariffs are the number one financial concern for Americans, as the weight of inflation is still oppressive to family budgets, especially among those with lower incomes, said Robert Frick, a corporate economist at Navy Credit Union. “Even slight increases in prices, especially in top pain points such as food, shelter, and transportation, would be acutely felt by millions.”
The report also showed a broad decline in optimism across political and demographic groups. Hsu noted that sentiment dropped among Republicans, Independents, and Democrats alike, with similar declines observed across age and wealth groups.
Markets reacted negatively to the report, with the Dow Jones Industrial Average initially falling by nearly 300 points.
The survey’s current conditions index fell to 68.7, reflecting a 7.2% decline from January and a 13.5% drop from the previous year. Meanwhile, the expectations index decreased to 67.3, down 2.9% for the month and 10.5% year over year.
Hsu stated that the declines seen across various survey indexes illustrate “a perception that it may be too late to avoid the negative impact of tariff policy.”
