Consumer Sentiment in U.S. Drops on Inflation, Omicron Fears

(Bloomberg) -- U.S. consumer sentiment declined in early January by more than forecast amid mounting concerns about soaring inflation and the fast-spreading omicron variant.

The University of Michigan’s preliminary sentiment index fell to 68.8 from 70.6 in December, the second-lowest in a decade, data released Friday showed. The figure trailed the median estimate of 70 in a Bloomberg survey of economists.

Americans expect inflation to rise 4.9% over the next year, matching the highest since 2008, the Michigan report showed. They expect prices will rise at an annual rate of 3.1% over the next five to 10 years, the most since 2011.

Consumer prices rose 7% in 2021, the largest 12-month gain since 1982, as everything from cars to groceries got more expensive amid pandemic-fueled supply and demand imbalances. The December advance, released Wednesday, was led by higher prices for shelter and used vehicles.

Sentiment was also dragged down by a surge in Covid-19 cases due to the omicron variant, which has triggered school and business closures and upended Americans’ travel and return-to-office plans. While a strong labor market has buoyed households, most wage gains are being wiped out by inflation, eroding consumers’ purchasing power.

When asked about their finances, 33% reported being worse off than a year ago, just above the April 2020 shutdown level of 32%. It’s even starker among cash-strapped families: twice as many households with incomes in the bottom third as in the top third reported worsening finances, the report said.

The gauge of current conditions fell to 73.2, the lowest since 2011, while a measure of future expectations declined to 65.9, the survey showed.

The report continued to reflect a sharp partisan divide. While sentiment among Democrats fell to the lowest in a year, they still maintain a far more favorable view of the economy than Republicans.

©2022 Bloomberg L.P.