Americans are bracing for higher inflation, rattled by tariff threats that cloud economic optimism.
The University of Michigan’s consumer survey for February reveals a sharp spike in one-year inflation expectations, hitting 4.3%—a full percentage point jump from January and the highest since November 2023.
The shift comes as President Donald Trump pushes aggressive tariffs against major U.S. trading partners.
While tariffs on Canada and Mexico have been postponed, the prospect of cost pass-throughs to consumers—alongside China’s retaliatory measures—has dampened sentiment.
The survey, conducted between Jan. 21 and Feb. 3, reflects a growing unease about inflation’s trajectory.
Many consumers appear worried that high inflation will return within the next year, according to Joanne Hsu, director of the survey.
She noted that such a one-month surge in expectations is rare, occurring only five times in the past 14 years.
Longer-term projections remain more anchored, with five-year inflation expectations ticking up to 3.3%, a modest 0.1 percentage point gain.
The broader mood has soured as well. The sentiment index tumbled to 67.8, down 4.6% from January and 11.8% year-over-year. Economists polled by Dow Jones had anticipated a more optimistic 71.3.
Stock markets reacted swiftly, with the Dow Jones Industrial Average dropping nearly 300 points following the report. Inflation fears cut across political affiliations and income levels, signaling widespread concern.
Higher prices from tariffs remain the top financial worry for Americans, according to Robert Frick, corporate economist at Navy Credit Union. Even slight increases in essentials like food, housing, and transportation will be acutely felt by millions.
Hsu said overall declines in the various survey indexes reflect a perception that it may be too late to avoid the negative impact of tariff policy.
The current conditions index slumped 7.2% from January to 68.7, while the expectations index declined 2.9% to 67.3, deepening concerns about the economic outlook.
Businesses are also feeling the strain, as tariffs create uncertainty in supply chains and pricing strategies, further complicating financial planning and consumer confidence.
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