Consumer sentiment in the United States has fallen to a near-record low in the final reading before the midterm elections, with cost-of-living concerns weighing heavily on households. The University of Michigan’s Surveys of Consumers said its Consumer Sentiment Index dropped on Friday as continuing tensions between the United States and Iran pushed up prices at grocery stores and petrol pumps.
The index fell to 48.0 this month, down from 48.1 in September, making it the second-lowest reading on record. The lowest reading came only a few months ago, in May, when it stood at 44.8 points.
Political independents drive the drop in sentiment
The survey measures how consumers feel about their personal finances now and over the next 12 months. It also asks whether they consider this a good time to make major household purchases, and how they expect the US economy to perform over the next year and the next five years.
Also read: Iran war shapes US midterm vote as fuel and grocery costs rise
Self-identified political independents were a key factor in the weaker reading. Their sentiment fell to 42.4 points, just above the all-time low of 40.6 points they reached in May.
Since January, the number of independents citing inflation pressures as hurting their finances rose by 27 percent. Republicans referring to the same issue increased by 52 percent, while the figure rose by 15 percent among Democrats.
Households with little or no exposure to the stock market also cited high prices as a drag on their finances more often than at the start of the year. The stock market had recently been soaring on enthusiasm for the artificial intelligence investment boom.
Inflation expectations rise as prices stay high
Consumers’ expectations for inflation over the next five years rose to 3.5 percent. That compares with 3.4 percent in September and 3.2 percent in March.
Joanne Hsu, director of the Surveys of Consumers, said: “Purchasing power continues to dominate consumer views of the economy.” She added that sentiment was now 10 percent below a year earlier and 15 percent lower than in February, just before the Iran conflict.
Hsu wrote that consumers broadly expect inflation to accelerate, and that the rise in inflation expectations is not limited to one part of the political spectrum. She also said that aggregate consumer spending has remained relatively resilient despite negative views of the economy, which she described as another reason for caution.
Separately, inflation rose by 3.7 percent year on year last week, according to the recent consumer price index report. Petrol prices remain high, although they are lower than a month ago. The American Automobile Association, which tracks daily petrol prices, said the average gallon cost $4.29 ($1.13 per litre) on Friday, down from $4.47 ($1.18 per litre) this time last month.
Federal Reserve decision due before the midterms
Friday’s report comes ahead of the final monetary policy decision before the midterm elections. The Federal Reserve is largely expected on Wednesday to keep rates at 3.75 to 4.00 percent, after raising them by 25 basis points in September.
CME FedWatch, which tracks the likelihood of certain monetary policy decisions, puts the chance that rates will remain unchanged at 89.5 percent.
