Consumer Sentiment Remains Low, Gains Edged Out by Highest Rate of Inflation Uncertainty in ‘Nearly 40 Years’

young woman open purse to payment for clothes at shopping store and her wearing medical mask for prevention from coronavirus (Covid-19) pandemic.
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The University of Michigan’s Consumer Sentiment Survey was released this morning, showing a slight decrease in consumer confidence in October over September’s figures.

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Consumer confidence weakened slightly in October, declining to 71.7 in October’s final reading, representing a decline from September’s 72.8 figure. This came in slightly better than the flash estimate and the market expectation of 71.4, FX Street reports.

Survey of Consumers Chief Economist Richard Curtin said “The positive impact of higher income expectations and the receding coronavirus has been offset by higher rates of inflation and falling confidence in government economic policies.”

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He added that consumers not only anticipated the highest year-ahead inflation rate since 2008 in the October survey, but that consumers also expressed greater uncertainty about the inflation rate for the year ahead than anytime in “nearly 40 years.”

Also surprising, this was “the first major spike in inflation uncertainty recorded outside of a recession.”  This means that there have never been such high expectations of inflation without there already having been clear economic recession. To have these kinds of markers, outside of a recession, is historic.

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It’s important to note that declining living standards due to inflation were spontaneously mentioned by at least 20% of households. These figures were also concentrated among older and poorer households.

Conversely: Financial Confidence Among Millennials and Gen Z Rose to 60% During COVID-19

Curtin also added that “the declining resistance to price hikes among buyers will be joined by less resistance among sellers to hiking prices that will be justified by higher materials and labor costs.” Notably, these reactions provide an environment conducive to ongoing upward inflationary pressures — that is until a “tipping point” is reached when consumers’ incomes can no longer keep pace with rising prices. He ends with the poignant reminder that in the past, one recession was not enough to tackle inflation, and that it required a “series of boom-bust” cycles until the only resolution was raising interest rates to record levels.

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Inflation is currently up around 6% for the year.

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Last updated: October 29, 2021

About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 

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