Inflation Worries Send US Consumer Confidence Plunging to 10-Year Low

By Tom Ozimek
Tom Ozimek
Tom Ozimek
Reporter
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'
November 12, 2021 Updated: November 12, 2021

U.S. consumer sentiment plunged to a decade low in November, according to a University of Michigan survey, which blamed surging inflation and a growing conviction among American consumers that no effective policies have been put in place to tame runaway prices.

The university’s consumer sentiment index fell to a reading of 66.8 in November, down nearly 7 percent from October’s reading and a 10-year low.

“Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” Richard Curtin, the survey director, said in a statement.

Inflation has emerged as a key theme of the post-pandemic economic recovery, rising faster than wages and eroding the purchasing power of Americans.

“Inflation concerns are weighing on consumer confidence,” Bankrate Chief Economic Analyst Greg McBride told The Epoch Times in an emailed statement. “When household costs rise faster than income, it puts the squeeze on buying power, which in turn holds back economic growth.”

While average hourly earnings rose 4.9 percent in the year through October, the Labor Department said in a Nov. 10 release (pdf), the higher 6.2-percent pace of over-the-year consumer price inflation means that wages actually contracted by around 1.3 percent in real terms.

“Nominal income gains were widely reported but when asked about inflation-adjusted gains, half of all families anticipated reduced real incomes next year,” Curtin said. “Rising prices for homes, vehicles, and durables were reported more frequently than any other time in more than half a century.”

Curtin said 25 percent of consumers polled by the University of Michigan research team said that inflation led to a reduction in their standard of living, with older consumers reporting the biggest impact.

With prices running high and little sign of immediate relief, consumer expectations for what the rate of inflation will be in the future have also risen to all-time highs.

The New York Fed’s most recent consumer inflation expectations survey showed that short-term (one year ahead) inflation expectations rose in October to 5.7 percent, the highest reading in the history of the series. The medium-term (three years ahead) inflation expectations remained unchanged from the prior month’s level of 4.2 percent, which was a record high.

Bond markets, too, are pricing in a more persistent bout of inflation that the “transitory” camp—including Fed policymakers and Biden administration officials—believe. A key measure of the bond market’s expectations for upward price pressures over the next five years, known as the five-year breakeven inflation rate, surged to an all-time high of 3.113 percent on Nov. 10, shortly after government data was released showing consumer price inflation rising at its fastest annual rate in nearly 31 years.

“The description that inflation would be ‘transient’ has the undertone that consumers could ‘grin and bear it’ as economic policies counted on a quick and automatic self-correction to supply and labor shortages,” Curtin said. “Instead, the pandemic caused economic dislocation unlike any prior recession.”

The sharp rise in the bond market-derived gauge suggests that investors expect inflation to average over 3 percent a year for the next five years and that upward price pressures will be more persistent than the Fed’s “transitory” expectations, potentially forcing the central bank to accelerate its timetable for a rate hike.

Tom Ozimek
Reporter
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'