Inflation fears took a toll on consumer sentiment in July.
The University of Michigan’s preliminary sentiment index fell to 80.8 in July from 85.5 in June. It was the index’s lowest level since February. Economists polled by Reuters had forecast the index would rise to 86.5.
The decline was caused by a misjudgment by consumers in the pace that the economy would recover as the pandemic eased, according to Richard Curtin, chief economist, Surveys of Consumers, University of Michigan.
“This involved both underestimating the economy's ability to reactivate supply lines and restore jobs, and the resulting impact on inflation,” he explained. “Rather than job creation, halting and reversing an accelerating inflation rate has now become a top concern. Inflation has put added pressure on living standards, especially on lower and middle-income households, and caused postponement of large discretionary purchases, especially among upper income households.”
The survey's gauge of current economic conditions also fell, dropping to 84.5, the lowest since August 2020, from 88.6 in June. The measure of consumer expectations (for the next six months) fell to 78.4, the lowest since February, from 83.5.
The survey showed consumers preparing for a 4.8% increase in the cost of living this year, the highest level since 2008.
“Consumers’ complaints about rising prices on homes, vehicles, and household durables has reached an all-time record,” Curtin noted.