United States consumer sentiment fell in April to a record low, reflecting growing worries about the economic impact of the Iran war and persistent inflation. The University of Michigan's final April sentiment index dropped to 49.8 from 53.3 in March, marking the lowest reading since data collection began in 1978.
Inflation Expectations Surge
Consumers now expect prices to rise at an annual rate of 4.7% over the next year, up significantly from 3.8% in March. This represents the largest one-month increase since President Donald Trump announced sweeping tariffs last year. Longer-term inflation expectations also rose, with consumers anticipating an annual increase of 3.5% over the next five to ten years, the highest level since October.
Impact of the Iran War
The conflict in Iran has driven up fuel costs for inflation-weary Americans, contributing to the sharp decline in sentiment. While the U.S. and Iran have agreed to a temporary ceasefire, the lack of a permanent deal keeps uncertainty high. Joanne Hsu, director of the survey, noted that the Iran conflict primarily influences consumer views through shocks to gasoline and other prices, while military or diplomatic developments that do not ease supply constraints or lower energy prices are unlikely to boost sentiment.
Analysts warn that gas prices, currently around US$4 a gallon, could remain elevated for months even if a peace deal is reached, potentially continuing to weigh on consumer confidence.
Retail Spending Holds Up for Now
Despite the gloomy sentiment, retail sales data released earlier this week showed that consumers continue to spend on a broad range of merchandise. Americans are enjoying larger tax refunds, and there are signs of front-loading purchases, which may explain some of the resilience in retail activity. However, spending risks softening in the coming months as higher energy costs add pressure to household budgets.
Gas Price Expectations Diverge by Political Affiliation
Consumers expect gas prices to climb nearly 50 cents in the coming year, though expectations varied by political affiliation. Overall, nearly two-thirds of respondents anticipate higher fuel costs a year from now, the largest share since 2022.
Key Indexes Decline
The current conditions gauge fell to a four-month low in April, while the expectations index dropped to its lowest level in nearly a year. Consumers' perceptions of their expected financial situation were the weakest since May of last year.
The survey period included responses collected from March 24 to April 20.
