Consumer Sentiment Skids as Year-Ahead Inflation Expectations Spike to 7.3% — Evening Brief – 05.16.25 

The University of Michigan Consumer Sentiment Index fell to a preliminary 50.8 in May 2025, missing the consensus of 53.1 and down from 52.2 in April, registering its second-lowest reading ever driven by tariff uncertainties and inflation concerns. The survey, conducted from late April to May 13, largely preceded the U.S.-China trade truce announced on May 12, suggesting the final May reading may improve due to rallying stock markets and eased trade tensions. However, consumer confidence remains fragile, with the Consumer Expectations component dropping to 46.5, the lowest since May 1980. 

Most interviews occurred before the trade truce, contributing to elevated inflation expectations: one-year-ahead expectations surged to 7.3% from 6.5%, and 5-to-10-year expectations rose to 4.6%, levels exceeding post-pandemic highs. “Tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April; uncertainty over trade policy continues to dominate consumers’ thinking about the economy,” said Joanne Hsu, Director of Surveys of Consumers. 

Sentiment has declined nearly 30% since January, fueled by perceptions of rapid inflation eroding spending power, job market concerns, and recent equity market volatility. Despite a strong equity rebound and the U.S.-China de-escalation, consumers anticipate higher prices from tariffs, alongside worries about government spending cuts and a cooling job market. 

The Federal Reserve notes a disconnect between sentiment and spending, but The Conference Board’s measure suggests a lingering correlation. The significant drop in confidence signals downside risks to consumer spending in the near term.