Rising prices slash consumer confidence to its lowest level in a decade
The Biden administration’s failure to tackle soaring and spiraling inflation pushed consumer confidence this month to its lowest level in a decade.
The University of Michigan’s final sentiment index fell to 67.4 during the month from 71.7 in October, according to data released Wednesday. This was a slight improvement from the mid-month reading and above expectations.
“Consumers expressed less optimism in the November 2021 survey than at any other time in the past decade about the prospects for their finances as well as for the overall economy,” said Richard Curtin, chief economist at the Consumer Survey. “The decline was due to a combination of rapidly rising inflation along with a lack of federal policies that would effectively address the inflationary damage to household budgets.”
Both indicators of current conditions and future expectations fell sharply.
While inflation in the spring and early summer was initially concentrated in a few products with severe shortages in the supply chain, it does not spread widely through the economy and consumer pain is widespread. One in four consumers said inflation has eroded their standard of living, according to Curtin.
Instead of easing gradually as the shortage diminishes, complaints about declining standards of living have doubled in the past six months and tripled in the past year. Consumers expected inflation-adjusted incomes to decline, and they expected spending cuts due to higher inflation to slow the pace of growth in the national economy next year, Curtin said.
This may not affect holiday spending. Curtin said consumers have a strong desire to return to regular holiday gatherings with friends and family. They also plan to spend the accumulated savings on gifts and celebrations despite the higher prices.
Curtin warns that time is running out to contain inflation.
The real passing issue is the window that closes quickly when effective policy action can be accomplished through very modest nudges in interest rates and regulations, and at present, consumers still expect inflation to rebound to a much lower level over the next five years, but this anchor has done . It’s paying off: Long-term inflation expectations rose 0.5 percentage point last year, to 3.0 percent in November. If the projected long-term inflation continues to accelerate in the first half of 2022, it will make it more difficult to contain, and even more so, if the rise continues until the latter half of 2022. Moreover, an extended inflation period will renew the urgent need to expand Government relief payments from job losses to cover inflationary declines in living standards. There would be no more convincing precedent for consumers that the 5.9 percent inflationary adjustment in Social Security payments starting in January 2022.
On Tuesday, President Joe Biden announced plans to combat inflation by releasing 50 million barrels of oil from strategic reserves and investigating fuel companies over allegations of lack of competition. The price of oil rose 3.3 percent.