Dive Brief:
- Consumer sentiment inched down this month, eroded by worries that persistent inflation will further weaken buying power, the University of Michigan said Friday in a survey report.
- Household perceptions of the conditions for purchasing durable goods slumped 18% because of concerns about rising interest rates and declining affordability, Joanne Hsu, the university’s surveys of consumers director, said in a statement. With less than two weeks before the Nov. 3 mid-term elections, a decline in sentiment among independent voters exceeded an increase in the outlook among Republicans and Democrats.
- “Purchasing power continues to dominate consumer views of the economy,” Hsu said, noting that sentiment has fallen 15% since just before the start of the U.S. war with Iran.
Dive Insight:
Selling prices this month rose at the fastest rate since Aug. 2022 as companies passed on rising production costs to customers, S&P Global said Friday, reporting on a survey of purchasing managers in the manufacturing and service sectors.
“Cost pressures remain a key concern, notably as the renewed surge in oil prices reverberates through to impact a wide variety of goods and services,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.
Worsening supply chain bottlenecks and increasing backlogs in order books have prompted companies to raise prices, he said.
“The result is the sharpest increase in selling prices for over four years to a pace that indicates consumer price inflation is likely to rise further above the Fed’s target in the coming months,” Williamson said, referring to the Federal Reserve’s 2% inflation target.
Fed officials are scheduled to discuss monetary policy on Oct. 27-28 as a war-induced surge in fuel prices speeds up inflation across much of the economy. The price for a barrel of Brent crude oil has surged 79% during the past year to $116.76.
While pushing up inflation, higher fuel prices have also increased inflation expectations, Hsu said.
Inflation expectations for a year from now rose this month to 4.7% from 4.6% in September, well above the 3.4% level in February before the U.S. and Israel launched air strikes against Iran, Hsu said.
Long-run inflation expectations also increased, rising from 3.4% in September to 3.5% in October, she said.
“After five years of above-target inflation, both short- and long-term inflation expectations have ticked up in recent months, exposing risks that elevated inflation expectations could become entrenched,” Hsu said Friday in a second report.
Fed officials closely track expectations for inflation, believing such sentiments can become self-fulfilling. Recent surveys by the Conference Board and New York Fed also showed that households expect price pressures to persist well above the central bank’s 2% goal.
“There is little evidence from interviews that consumers conceptualize tariffs and oil price shocks as yielding one-time step-ups in price levels, rather than ongoing inflation,” Hsu said.
“Indeed, consumers broadly expect inflation to accelerate,” she said, noting that “this year’s increases in inflation expectations are not limited to one part of the political spectrum.”
