U.S. Consumer Sentiment Dropped to 11-month Low Amid Inflation

The U.S. consumer sentiment dropped to an 11-month low in August with rising concern on household expenses such as the cost of living, which means the probability for slower consumer spending.

Based on the reports of the University of Michigan on Friday, the consumer sentiment index declined to 95.3 early this month compared to 97.9 in July, which has been the weakest since September 2017. The surveyed conditions sub-index of consumer expectations slid to 107.8 from 114.4 reading in July.

The decline of the sentiment was focused on the households being the bottom third of the income distribution, implying consumer prices for major household goods that have been negative in almost 10 years.

Inflation has been increasing in the latest months, pushed by a strong domestic demand and labor market close that is close to being near or at complete employment.

One of the main reason of the decline was due to more expensive goods that were linked to trade policy of the Trump administration, resulted to an escalation of the trade war between the U.S. and China as a retaliation of trade war with Canada, European Union, and Mexico.

The U.S. economist, Andrew Hunter, of Capital Economics, said that escalating trade war “at face value” imposes fear to consumers. Although, the main driver was the recent inflation hike.

The consumer price index rose to 2.9 percent year-on-year in July, which was similar a month before and the largest rise since February 2012. Meanwhile, the personal consumption expenditures (PCE) price index, used as the Federal Reserve’s chosen inflation measure, excluding food and energy, grew to 1.9 percent in June.

The core PCE price index reached  2 percent inflation target of the central bank in March for the first time since December 2011.