Consumers have become increasingly pessimistic as inflation continues to persist. The overall measure of Consumer Confidence fell by -4.5 points to a reading of 98.7 in June, driven primarily by the Future Expectations Index dropping to an 8-year low (top graph below). To quote the Conference Board: “the Expectations Index continued its recent downward trajectory—falling to its lowest point in nearly a decade. Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices. Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by year end.”
As stated above, inflation is a major factor causing the deteriorating outlook of consumers. Inflation expectations for the next 12 months jumped from 7.5% to 8.0% last month – the highest reading in the 35 years since this Index began (bottom graph below). We have warned about the dangers of inflationary psychology becoming ingrained in the minds of consumers, as it can create a self-fulfilling phenomenon. Consumers’ inflation expectations surging to new highs is a clear example of this, posing a major challenge to the Federal Reserve as they attempt to regain control over today’s pricing pressures.
Eli Petropoulos, CFA – Sr. Market Analyst
