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February 12, 2021 11:00 AM, EST

Consumer Sentiment Unexpectedly Falls to Six-Month Low

A shopping mall in Tucson, Ariz.A shopping mall in Tucson, Ariz. (Cheney Orr/Bloomberg News)

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Consumer sentiment unexpectedly declined to a six-month low in early February as the outlook for personal income deteriorated and more Americans anticipated faster inflation in the year ahead.

The University of Michigan’s preliminary sentiment index fell to 76.2 from 79 last month, data released Feb. 12 showed. The median forecast in Bloomberg’s survey of economists called for a modest improvement to 80.9 and the result was weaker than the most pessimistic estimate.

Consumers expect a year-ahead inflation rate of 3.3%, the highest since July 2014.

A gauge of the outlook for consumers’ finances dropped to 116 in early February, the lowest since November 2014 and despite lawmakers’ latest round of negotiations on President Joe Biden’s $1.9 trillion stimulus plan.

consumer sentiment graphic

Elevated unemployment, limited social activity because of COVID-19 and a slow pace of vaccinations are also depressing sentiment. At the same time, confidence may stabilize as states ease business restrictions and more people get vaccinated in the coming months.

“Households with incomes in the bottom third reported significant setbacks,” Richard Curtin, director of the survey, said in the report. “Presumably a new round of stimulus payments will reduce these financial hardships.”

The gauge of expectations decreased to a six-month low of 69.8 while a measure of current conditions eased to 86.2, according to the survey conducted Jan. 27-Feb. 10.

Americans may be anticipating paying higher prices because of recent increases in the costs of gasoline and food. The average price of a gallon of gas on Feb. 11 was $2.50, the highest since early 2020, while grocery prices were up 3.7% in January from a year earlier.

Meantime, five-year inflation expectations held at 2.7% this month. That is still up from 2.3% in February 2020.

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