US consumer sentiment plunged in the first few weeks of June to its all time lowest on record as the ongoing inflation continues to drop the household finances.
As per the University of Michigan’s preliminary June sentiment index’s data which released Friday, it faced a drop to 50.2 from 58.4 earlier in May. The figure was even more weaker than all expectations in some of the surveys by various economists which had a median forecast of 58.1.
Inflation expectations, which the Federal Reserve watches closely, also moved higher early this month and 46% of respondents attributed their negative views to persistent price pressures. Just 13% expect their incomes to rise more than inflation, the lowest share in almost a decade.
“Throughout the survey, consumers signaled strong concerns that inflation will continue to erode their incomes, and the factors they cited are unlikely to abate soon,” Joanne Hsu, director of the survey, said in a statement.
“While consumer spending has remained robust so far, the broad deterioration of sentiment may lead them to cut back on spending and thereby slow down economic growth,” Hsu said.
Separate data Friday showed a fresh 40-year high inflation rate. The widely followed consumer price index increased 8.6% in May from a year earlier. Compared with a month earlier, the inflation gauge rose 1% in a broad advance that topped all estimates.
The figures add to political problems for President Joe Biden and Democrats ahead of the midterm congressional elections this fall. The Michigan report showed sentiment among political independents dropped to the lowest in records back to 1980.
The current conditions gauge sank to a record-low 55.4 from 63.3, while a measure of expectations decreased to 46.8 from 55.2.
Respondents said they expect inflation to rise 5.4% over the next year, up from 5.3% a month earlier. They expect prices to advance 3.3% over the next five to 10 years, the most since 2008 and up from 3% in May.
“These expectations rose despite, leading into the Federal Reserve’s policy-setting meeting next week, a record high 88% of consumers expecting interest rates to increase during the next year,” Hsu said.
Inflation is exceeding wage growth, prompting many Americans to dip into savings and take on more debt. As high prices leave less income for discretionary purchases, the risk to the economy is a more pronounced slowdown in consumer spending.