The U.S.-Iran war has dented consumers’ morale notably in April, with near-term inflation expectations increasing further from March levels.
The U.S.-Iran war has severely dented consumers’ morale notably in April, with near-term inflation expectations increasing further from March levels.
War Erodes Confidence: The results of the University of Michigan’s mid-month survey released Friday showed that the consumer sentiment index fell nearly 11% month over month (MoM) to 47.6 in April, marking a record low. Economists, on average, expected a more modest decline to 51.6.
The current conditions index as well as expectations fell more than 10% each to 50.1 and 46.1, respectively.
A reading below the cut-off ‘50’ mark is considered extremely pessimistic regarding the economy and personal finances.
The report showed that one-year business conditions plunged 20% and consumers’ assessment of personal finances fell 11%. Consumers expressed “a substantial increase in concerns over high prices and weaker asset values.” “Buying conditions for durables and vehicles worsened, again on the basis of high prices.”
Replying to open-ended comments, consumers blamed the Iran conflict for unfavorable changes to the economy. The only consolation is that almost the entirety of responses reflected views held before the April 7 ceasefire.
Inflation Outlook Worsens: The year-ahead inflation expectations surged to 4.8% from 3.8% in March. The reading exceeded those seen in 2024 and remained well above the 2.3-3.0% range seen in the two years pre-pandemic.
Inflation Expectations for Year-Ahead
Source: UMich
Long-run inflation expectations ticked up to 3.4% from 3.2% last month, the highest reading since Nov. 2025.
The consumer price inflation (CPI) report for March released on Friday showed that higher energy prices pushed up the monthly headline rate to its highest in about four years. The core readings, however, were tamer than expected.