In February, American consumers had a bleak perspective on the economy, as uncertainty about Trump’s trade strategy pushed inflation expectations considerably up for the second consecutive month.
The most recent University of Michigan consumer sentiment poll, issued Friday, showed headline sentiment down nearly 10% from January to a rating of 64.7. Pessimism about the inflation forecast pushed February’s final reading lower, as one-year inflation predictions increased to 4.3% from 3.3% last month. While this was consistent with February’s preliminary estimate, it was the highest level of inflation predictions since November 2023. The announcement said it was the second straight month of “huge” rises.
While this was consistent with February’s preliminary estimate, it was the highest level of inflation predictions since November 2023. The announcement said it was the second straight month of “huge” rises. “What is occurring is a very broad-based judgment or judgment among consumers that inflation is going to pick up in the year ahead, as well as the next five years,” Joanne Hsu, director of consumer surveys at the University of Michigan, told Yahoo Finance on Friday. “It’s not always cause for panic at this moment, but fears over policy and concerns drive these hopes that duties will lead to price increases.”
Long-run inflation forecasts, which follow estimates for the next five to ten years, increased from 3.2% in January to 3.5% in February, the highest since April 1995 and the most significant month-on-month increase since May 2021. “We last observed such a significant increase in long-run inflation predictions in 2008. But times were extremely different,” Hsu added, remembering how customers responded to recent price shocks 2008. “This time, it’s entirely different. People are not reacting to the latest price shocks. “They’re responding to anticipated price shocks,” Hsu explained. “So it remains to be seen if these inflation forecasts will hold. It truly relies on what tariff measures are implemented and whether or not they affect consumer pricing.”
