Consumer Sentiment Drops Amid Inflation Fears and Tariff Talks

Consumer sentiment in the United States has taken a significant hit in recent months, with inflation fears and ongoing tariff talks contributing to a decline in confidence. According to the University of Michigan's monthly sentiment index, consumer sentiment fell for the second consecutive month in February, reaching its lowest level since July 2024. The index dropped to 67.8 from 71.1 in January, a decrease of 4.6%.

One of the primary concerns driving this decline in consumer sentiment is the expectation of rising inflation. Year-ahead inflation expectations jumped up from 3.3% last month to 4.3% this month, marking two consecutive months of unusually large increases. This is the highest reading since November 2023 and well above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations also ticked up from 3.2% last month to 3.3% this month.

The Wells Fargo report, shared with Retail Dive, echoes these findings. The report notes that consumers now expect the inflation rate to rise to 4.3% over the next year, up from 3.3% the previous month. This uncharacteristically high jump in short-term inflation expectations has led to a decrease in consumer sentiment, particularly among those with lower incomes and younger age groups.



The ongoing tariff talks and the potential implementation of new tariffs have also contributed to the decline in consumer sentiment. In February 2025, President Trump announced plans to impose tariffs on goods from Canada, Mexico, and China, which could add as much as 0.8 percentage point to core (excluding food and energy) inflation in the U.S. (Source: Federal Reserve Bank of Boston, "Current Policy Perspectives," February 6, 2025). This announcement, along with the prospect of changes in those policies, has led consumers to hunker down and reduce spending, particularly on durable goods.

The Conference Board's consumer confidence index also reflected this trend, with a decline of almost 4% from December and 10% from a year ago in January 2025. Job and inflation concerns were the primary drivers of this decline.

In conclusion, consumer sentiment in the United States has taken a hit in recent months, with inflation fears and ongoing tariff talks contributing to a decline in confidence. Consumers now expect the inflation rate to rise to 4.3% over the next year, up from 3.3% the previous month. The ongoing tariff talks and the potential implementation of new tariffs have also contributed to the decline in consumer sentiment, leading consumers to reduce spending, particularly on durable goods. As the U.S. economy continues to navigate these challenges, it will be crucial for policymakers to address these concerns and restore consumer confidence.