U.S. consumer sentiment plunged in early June to its lowest mark on record as soaring inflation continued to batter household finances.
The University of Michigan’s preliminary June sentiment index fell to 50.2, down from 58.4 in May, data released Friday showed. The figure was weaker than all estimates in a Bloomberg survey of economists, which had a median forecast of 58.1.
Inflation expectations, which the Federal Reserve watches closely, also moved higher early this month, and 46% of respondents attributed their negative views to persistent price pressures. Just 13% expect their incomes to rise more than inflation, the lowest share in almost a decade.
“Throughout the survey, consumers signaled strong concerns that inflation will continue to erode their incomes, and the factors they cited are unlikely to abate soon,” Joanne Hsu, director of the survey, said in a statement.
“While consumer spending has remained robust so far, the broad deterioration of sentiment may lead them to cut back on spending and thereby slow down economic growth,” Hsu said.
Separate data Friday showed a fresh 40-year high inflation rate. The widely followed consumer price index increased 8.6% in May from a year earlier. Compared with a month earlier, the inflation gauge rose 1% in a broad advance that topped all estimates.
The figures add to political problems for President Joe Biden and Democrats ahead of the midterm congressional elections this fall. The Michigan report showed sentiment among political independents dropped to the lowest in records back to 1980.
The current conditions gauge sank to a record-low 55.4 from 63.3, while a measure of expectations decreased to 46.8 from 55.2.
Respondents said they expect inflation to rise 5.4% over the next year, up from 5.3% a month earlier. They expect prices to advance 3.3% over the next five to 10 years, the most since 2008 and up from 3% in May.
“These expectations rose despite, leading into the Federal Reserve’s policy-setting meeting next week, a record high 88% of consumers expecting interest rates to increase during the next year,” Hsu said.
Inflation is exceeding wage growth, prompting many Americans to dip into savings and take on more debt. As high prices leave less income for discretionary purchases, the risk to the economy is a more pronounced slowdown in consumer spending.