Consumer sentiment plummets to six-month low as inflation, interest rates take toll

The latest University of Michigan consumer sentiment survey, released on Friday, revealed a significant decrease in overall sentiment during the month of May. The preliminary reading for the month stood at 67.4, representing a 13% drop and marking its lowest level in six months. This fall in sentiment can be attributed to rising inflation and interest rates, as well as concerns regarding potential job losses. Although the index reading remains higher than the corresponding figure recorded at the same time last year, it is a drastic contrast to April’s final reading of 77.2. The ongoing surge in consumer price increases, which has persisted throughout this year following a steep decline in 2021, has contributed significantly to the somber economic outlook. The University of Michigan’s findings come as policymakers at the Federal Reserve continue to emphasize their intention to maintain their benchmark interest rate at a 23-year high until such time as inflation returns to its target rate of 2%. In March alone, prices surged by 3.5% compared to the comparable period in 2021, which was an increase from the previous month’s reading of 3.2%. These developments suggest that consumers remain deeply pessimistic about the state of the economy, especially given that this sentiment has been consistently negative ever since the pandemic began.