Following two months of improvement after hitting an all-time low, Consumer Sentiment has declined again. Economist expectations had penciled in Consumer Sentiment remaining essentially flat in August. However, the overall Index dropped nearly 8%.
Although the Consumer Price Index report released earlier this week showed slowing inflation in July, this reprieve could be short lived as consumer inflation expectations moved higher in August. This indicates that consumers are feeling higher prices, and it could warn that inflation will heat up in the coming months.
The pervasiveness of concerns regarding sustained high inflation were evident throughout the report as highlighted by the below quote:
Although the early-month weakening in sentiment was pervasive across various demographic groups, notably large reductions were seen among older consumers, lower-income consumers, and those without a college degree. These groups are all particularly vulnerable to any erosion of purchasing power stemming from inflation.
Survey of Consumers Director Joanne Hsu, August 14, 2026
Most concerningly, only 8% of consumers expect their income growth to exceed inflation in the year ahead. That means 92% of consumers are anticipating an effective pay cut in terms of purchasing power over the year – something that does not bode well for consumer spending and by extension the economy as a whole.