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Consumer sentiment dips to open March for the first time in 4 months

Inflation expectations fell to two-year lows, the University of Michigan reported.

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After months of gains, consumer sentiment fell to start the month of March.

According to the University of Michigan’s preliminary data for March, sentiment fell for the first time in four months. Currently, it is 5% below February, but is 7% higher than the same month of 2022.

Driving the declines were lower sentiment among lower-income, less-educated, and younger consumers, as well as some of the highest stockholders.

Higher prices resulting from stubborn inflation continue to be a big drag on sentiment across all categories. While the collapse of Silicon Valley Bank and other financial institutions figures to play a role, most of the interviews for UM’s data collection were completed prior to the SVB turmoil.

chart showing the index of consumer sentiment (Source: University of Michigan)

Looking ahead, consumers do see improvement on the horizon for prices. Year-ahead inflation expectations fell from 4.1% in February to 3.8% in March. That’s the lowest reading since April 2021. Long-run expectations also fell to 2.8%, which was below the range of 2.9%-3.1% for only the second time in 201 months.

The takeaway: While these readings are still well above pre-pandemic levis, they will likely be welcome news among economists at the Federal Reserve as a signal that inflation is not becoming implanted in the consumer psyche. But with the introduction of a banking crisis and inflation remaining stubborn, the Fed’s path is not clear, and that will extend to consumers.

“With ongoing turbulence in the financial sector and uncertainty over the Fed’s possible policy response, inflation expectations are likely to be volatile in the months ahead,” wrote UM Survey of Consumers Director Joanne Hsu.

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