US Consumer Sentiment Plummets to Near-Record Low Ahead of Midterm Elections Amidst Inflation Woes

Consumer sentiment in the United States has reached a near-record low in the final reading before the crucial midterm elections, as persistent cost-of-living issues continue to impact US consumers. The University of Michigan’s Surveys of Consumers reported that its Consumer Sentiment Index fell on Friday, with ongoing tensions between the US and Iran contributing to rising prices at grocery stores and petrol stations.

The index dropped to 48.0 this month, a slight decrease from the final reading of 48.1 in September, marking the second-lowest figure on record. The lowest point was recorded just a few months prior, in May, at 44.8 points. The survey assesses consumers' current personal finances, their expectations for the next 12 months, their views on making major household purchases, and their economic outlook for the next 12 months and five years.

“Purchasing power continues to dominate consumer views of the economy,” stated Joanne Hsu, director of the Surveys of Consumers. “Sentiment is now 10 percent below a year ago and 15 percent less than February, just prior to the Iran conflict.”

Political Pressure Mounts

Significantly, weaker sentiment was particularly pronounced among self-identified political independents. Their sentiment dropped to 42.4 points, narrowly above the all-time low of 40.6 points reached in May. Since January, the proportion of independents citing inflation pressures as a detriment to their financial situation has increased by 27 percent. Republicans referencing the same issue saw a rise of 52 percent, while the figure increased by 15 percent among Democrats.

Households with minimal or no exposure to the stock market, which had recently seen gains fueled by enthusiasm for the artificial intelligence investment boom, have also more frequently cited high prices as a drag on their finances compared to the beginning of the year. Consumers' expectations for inflation over the next five years have risen to 3.5 percent, up from 3.4 percent in September and 3.2 percent in March.

“Consumers broadly expect inflation to accelerate, and this year’s increases in inflation expectations are not limited to one part of the political spectrum,” Hsu wrote. “The fact that aggregate consumer spending has been relatively resilient despite negative views of the economy provides another reason for caution. If part of consumption currently reflects precautionary spending to avoid future price hikes, disinflation may be even more difficult to achieve.”

This sentiment emerges amidst heightened prices for consumers. Inflation rose by 3.7 percent year on year last week, according to the latest consumer price index report. Petrol prices remain elevated, though they have decreased from the previous month. The average price for a gallon of petrol stood at $4.29 ($1.13 per litre) on Friday, down from $4.47 ($1.18 per litre) at the same time last month, as tracked by the American Automobile Association (AAA).

Friday’s report precedes the final monetary policy decision before the midterm elections. The Federal Reserve is widely expected to maintain its rates at 3.75–4.00 percent on Wednesday, following a 25 basis point increase in September. CME FedWatch, which monitors the probability of monetary policy decisions, forecasts an 89.5 percent chance that rates will remain unchanged.