Consumer sentiment continued to worsen in April even as the U.S.-Iran war-driven energy price spike pushing inflation expectations further across the time horizons, according to the results of the University of Michigan’s mid-month survey published Friday.
Crunching the Numbers:The headline consumer sentiment index fell to 49.8 in April compared to 53.3 for March, while economists had expected a reading of 47.6.
The current conditions declined to 52.5 from 55.8 in March, but exceeded the consensus estimate of 50.1, and the expectations index moved down to 48.7 from 51.7 in March, while consensus expectations were at 50.1 and 46.1, respectively.
“Decreases in sentiment were seen across political parties, income, age, and education. Expected business conditions declined for both short and long time horizons, nearly matching year-ago readings when the reciprocal tariff regime was implemented,” said Joanne Hsu, Director of the Consumer Surveys.
“The Iran conflict appears to influence consumer views primarily through shocks to gasoline and potentially other prices. In contrast, military and diplomatic developments that do not lift supply constraints or lower energy prices are unlikely to buoy consumers.”
The near-term inflation expectations (one-year ahead) rose to 4.7% from 3.8% in April, slightly tamer than the 4.8% consensus estimate. The April surge marked the largest one-month increase in a year. The five-year inflation expectations climbed to a more than expected 3.5% from 3.2%, compared to the consensus estimate of 3.4%.
Read-Across for Rates: The Federal Reserve’s rate-setting committee, the Federal Open Market Committee (FOMC) meeting, is scheduled to meet for a two-day monetary policy meeting, beginning on April 28.
Futures traders have priced in a 99.5% probability of the central bank staying pat at 3.50%-3.75%.
The Iran conflict has complicated the outlook for monetary policy as inflation, which was already above the 2% central bank target, has seen a move higher. As consumer morale remains fragile and activity readings pointing to spike in input prices and delays in supplier deliveries, the growth outlook has tempered.
