In the latest consumer sentiment survey conducted by the University of Michigan, it was found that rising gas prices are not alleviating the financial burden on U.S. consumers, despite hopes of easing inflation. Expectations for inflation over the next year fell to 3.1% in September, the lowest it has been since March 2021. Additionally, inflation expectations for the next five to 10 years dropped to 2.7%, marking only the second time in 26 months that it has fallen below the narrow range of 2.9% to 3.1%. The Federal Reserve sees this as positive news, as it closely monitors Americans’ views on inflation amidst historic inflation levels. However, while consumers may anticipate a decline in inflation, it may become difficult for the Fed to rein it in as consumers become accustomed to higher prices.
Ian Shepherdson, the chief economist at Pantheon Macroeconomics, believes that the decline in inflation expectations is a positive development and a step towards normalization. However, Shepherdson notes that these readings are preliminary and that the final readings could be revised upward as consumers react to higher gas prices. Gasoline prices strongly influence inflation perception, and high prices tend to worsen consumer sentiment. Last summer, when gas prices reached over $5 per gallon and inflation hit a 40-year high, consumer sentiment reached record lows. Currently, the national average for regular gasoline is $3.87 per gallon, seven cents higher than the previous week and 17 cents higher than the same day last year.
Despite an overall decrease in consumer sentiment in September, particularly due to pessimism surrounding the current state of the economy, Americans have shown some improvement in their views on the future of the economy. However, there is still a sense of caution among consumers, and concerns about a potential government shutdown are starting to emerge. Joan Hsu, the director of consumer research at the University of Michigan, mentions that few consumers have yet mentioned the possibility of a government shutdown. Nevertheless, Hsu believes that consumer sentiment may decline if lawmakers struggle to raise the federal debt ceiling, similar to what happened in May when sentiment plummeted.
The combination of high gas prices and a government shutdown could have an impact on consumer mood, although weak demand may cause gas prices to fall slightly in the fall. AAA spokesperson Andrew Gross explains that while oil costs are increasing pump prices, lower demand is limiting the increases. As schools reopen and the weather becomes less pleasant, fewer people are using their vehicles, which is typical during this time of the year. However, the usual decline in pump prices has been hindered by recent oil price spikes.