US consumer confidence falls on rising inflation, Ukraine invasion

Consumer confidence in the US fell unexpectedly in early March amid concerns around inflation and the war in Ukraine, the results of a closely-followed survey revealed.

The University of Michigan's gauge of consumer confidence slipped from a reading of 62.8 at the end of February to 59.7.

Consensus had been for an unchanged reading.

"The persistent strength in demand was a critical factor that shaped the last inflationary age from 1965 to 1982, with stagflation peaking only near its end," said the survey's director, Richard Curtin.

"Current expectations are consistent with heightened pressures on wages to meet the continued growth in demand."

A gauge of Americans' expectations for inflation one-year ahead rose from 4.9% in February to 5.4% in March - the highest level since 1981.

Five years out however inflation was still seen at 3.0%.

Fully 24.0% of respondents mentioned the invasion of Ukraine when queried about the outlook.

A sub-index linked to American consumers' perceptions of current economic conditions meanwhile slipped only modestly to 67.8, while that tracking expectations for the next six months fell from 59.4 to 54.4.

The reading on the latter sub-index was the lowest since October 2011, during the debt ceiling debacle, Ian Shepherdson, chief economist at Pantheon Macroeconomics pointed out.

"Expectations are sensitive to both the state of the stock market and gas prices, so we aren’t surprised to see this decline; it could easily have been bigger, and we are braced for a further drop next month," he said.

Shepherdson also attributed the rise in inflation expectations one-year ahead to rising gas prices.

"As always, remember that sentiment and spending are not the same thing, and the chance of a significant divergence now is greater than in the past, because households have $2.5T in excess pandemic savings, far more than the amount needed to pay for more expensive gas.

"Note too that the Michigan sentiment index is much weaker than the Conference Board measure, for reasons which are not clear."