A recent survey conducted by the University of Michigan reveals growing concerns among U.S. consumers regarding the impact of tariffs on inflation. The findings, released on Friday, show a decline in the index of consumer sentiment, which fell to 50.8 in the preliminary reading for May, down from 52.2 in April. This marks the second-lowest sentiment reading in history, trailing only behind June 2022.
Additionally, expectations for future price changes have worsened. Short-term inflation expectations increased to 7.3%, up from 6.5% the previous month, while long-term inflation expectations rose slightly to 4.6% from 4.4%.
Notably, the majority of responses to the survey were collected before the announcement of a 90-day suspension on most tariffs between the U.S. and China. The trade environment has become a significant factor affecting consumer confidence.
Joanne Hsu, director of Surveys of Consumers, noted, “Tariffs were spontaneously mentioned by nearly three-quarters of consumers, an increase from almost 60% in April; uncertainty regarding trade policy continues to occupy a central role in consumers’ perceptions of the economy.”
Inflation expectations are critical indicators for both investors and policymakers. Federal Reserve Chair Jerome Powell has expressed a desire to ensure that long-term inflation projections do not escalate as a result of tariffs before considering further rate cuts.
Despite the temporary pause on tariffs against China and other nations, the effective tariff rate for imports into the United States remains significantly higher than before former President Donald Trump took office in January. Economists across the political spectrum largely concur that tariffs may lead to a short-term rise in prices, yet the potential for such increases to contribute to long-term inflation remains uncertain.
Recent inflation data, however, has not indicated any significant tariff-related price hikes, as both the consumer price index and producer price index for April fell below anticipated levels.
The finalized consumer sentiment index for May is scheduled for release on May 30, and it will be closely monitored to determine if the tariff pause has positively influenced consumer sentiment.
