Consumer Sentiment Slides as Inflation Expectations Rebound — Evening Brief – 09.11.26

U.S. consumer sentiment fell more than expected in early September, dragged down by rising short-term inflation expectations, surging fuel prices, and persistent geopolitical tensions, according to preliminary data released Friday by the University of Michigan.

The preliminary Consumer Sentiment Index dropped to 47.8 in September, falling short of Wall Street consensus estimates of 51.4 and down from 51.7 in August. The decline marks the second consecutive monthly drop for the benchmark index, leaving overall consumer confidence 16% below its pre-Iran conflict level in February and 13% lower than a year ago.

Deteriorating household outlooks were driven by a notable spike in inflation expectations. One-year inflation expectations surged to 4.6% from 4.0% in August, reaching their highest level since June. Five-year implied inflation also ticked up to 3.4%, exceeding the 2.8% to 3.2% range observed in 2024.

“Year-ahead expectations for both personal finances and business conditions plunged,” said Joanne Hsu, director of the Surveys of Consumers. “With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come.”

The monthly drop in confidence crossed political lines, with Democrats and Republicans both recording sizable declines while independents remained largely unchanged. The index measuring current economic conditions dipped to 50.9 from 51.9 in August, while the consumer expectations sub-index plummeted to 45.8 from 51.5.

Despite the sharp retreat in short-term expectations, long-term business sentiment remained comparatively grounded. “Five-year expected business conditions remained stable at readings well below their historical average,” Hsu added, noting that consumers view emerging short-term risks as unlikely to further damage the long-run economic landscape.