Americans are increasingly pessimistic about the economy, with consumer sentiment falling to its lowest in a decade.
An inflation gauge that is closely monitored by the Federal Reserve jumped 6.1% in January compared with a year ago — the largest year-over-year rise since 1982. It’s the latest indication that Americans are enduring sharp price increases that will likely worsen after Russia’s invasion of. Excluding volatile food and energy prices, core inflation increased 5.2% in January from a year earlier, the Commerce Department reported on Friday in its monthly personal consumption expenditures (PCE) index. Robust consumer spending has combined with widespread product and worker shortages to create the highest inflation in four decades — a heavy burden for U.S. households, especially lower-income families faced with elevated costs for food, fuel and rent. Americans are expressing increasing pessimism about the economy, with the University of Michigan’s consumer sentiment index falling to its lowest level in more than a decade. Inflation is „a big concern,“ PNC Chief Economist Gus Faucher said in an email. „With PCE inflation running at its fastest pace in four decades, rapidly rising prices are eating away at real incomes and savings.“ The Federal Reserve has signaled it will raise interest rates this year to temper inflation, but that will make it more expensive to borrow, affecting everything from credit cards to mortgages. The Russia-Ukraine conflict will likely add to inflationary pressures due to higher energy prices, which analysts said could pressure the Fed to raise rates more aggressively than many on Wall Street previously expected. At the same time, consumers as a whole largely shrugged off the higher prices last month and boosted their spending 2.1% from December to January, Friday’s report said in an encouraging sign for the economy and the job market. That was a sharp improvement from December, when spending fell. Americans across the income scale have been receiving pay raises and have amassed more savings than they had before the pandemic struck two years ago. That expanded pool of savings provides fuel for future spending. „The strong consumer numbers come at a time when many economists were worried about an economy that was weaning itself of government stimulus in the latter part of 2021, and whether the consumer would be able to carry the torch in 2022,“ Peter Essele, head of portfolio management for Commonwealth Financial Network, said in an email. He added, „It appears discretionary spending remains strong, likely buoyed by rising incomes as a result of a tight labor supply.
