Consumer Sentiment Dipped in February and Inflation Expectations Climbed

Consumers were a bit less optimistic in February, data from the University of Michigan’s survey of consumer sentiment showed Friday.

The index for consumer sentiment dipped to 76.8 from 79 in January. A midmonth reading, however, had sentiment at 76.2 and economists had forecast a reading of 76.4, so the actual results were better than expected.

“Despite a small gain in late February, consumer sentiment was slightly lower for the entire month than in January,” said Richard Curtin, the survey’s chief economist.

The dip in confidence came from households in the lower end of incomes, Curtin said.

“All of February’s loss was due to households with incomes below $75,000, with the declines mainly concentrated in future economic prospects,” Curtin said. “The worst of the pandemic may be nearing its end, but few consumers anticipate the type of persistent and robust economic growth that restores employment conditions to the very positive pre-pandemic levels.”

Consumers are increasingly worried about inflation. The year ahead inflation rate was expected to be 3.3 percent in February, up from 3.0 percent last month and 2.5 percent in December.

“While consumers clearly anticipate a spurt in inflation in the year ahead, the overall evidence does not indicate the emergence of an inflationary psychology that makes the expectation of inflation a self-fulfilling prophecy,” Curtin said. “The key lesson learned from the last inflationary era is that it is easy to underestimate the strength of inflationary psychology, and correspondingly, it is easy to overestimate the ability of economic policies to bring an end to inflationary psychology.”