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Surging Gas Prices Drive Consumer Sentiment Even Lower

U.S. News & World Report logo U.S. News & World Report 3/11/2022 Tim Smart
Gas prices are shown Monday, March 7, 2022, in Tumwater, Wash. Governors and state lawmakers across the U.S. are scrambling to provide relief from soaring prices at the gas pump. They are discussing ways to lower or suspended gas taxes, but taking that step has not proved easy, since much of that money goes toward repair of roads and bridges. (AP Photo/Ted S. Warren) © (Ted S. Warren/AP) Gas prices are shown Monday, March 7, 2022, in Tumwater, Wash. Governors and state lawmakers across the U.S. are scrambling to provide relief from soaring prices at the gas pump. They are discussing ways to lower or suspended gas taxes, but taking that step has not proved easy, since much of that money goes toward repair of roads and bridges. (AP Photo/Ted S. Warren)

Consumers turned even more gloomy in March, amid the rise in gasoline prices and overall concern about the economy’s future, according to the University of Michigan’s consumer sentiment index released Friday.

The index fell almost 5% to 59.7 from 62.8 in February, with the index of future economic conditions dropping 8.4% to 54.4. That is 31.7% lower than a year ago.

The index of current economic conditions dipped slightly to 67.8.

“Consumer Sentiment continued to decline due to falling inflation-adjusted incomes, recently accelerated by rising fuel prices as a result of the Russian invasion of Ukraine,” said Richard Curtin, who oversees the survey. “The year-ahead expected inflation rate rose to its highest level since 1981, and expected gas prices posted their largest monthly upward surge in decades.”


Video: U.S. gas prices soar (NBC News)

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With gas prices topping $4 a gallon and inflation running at an annual rate of 7.9%, the highest level in four decades, it is no surprise that consumers are feeling gloomy. But they have continued to spend even when faced with higher prices. That may begin to slow down now and economists have begun reducing their estimates for growth this year while also predicting inflation will linger throughout 2022.

“Consequently, we have lifted our inflation forecasts even higher,” Sam Bullard, managing director and senior economist at Wells Fargo Corporate and Investment Banking. “We look for the year-over-year rate of headline (consumer price index) inflation to average 8.2% in Q2 and to only recede to 6.3% by the end of the year. We forecast that CPI inflation will average 7.5% over the course of 2022, which is up substantially from our previous call of 6.2%.”

“In turn, we have lowered our forecast for U.S. real GDP growth in 2022 to 3.0% from 3.7%,” Bullard added. ”We now see GDP growth running at a 2.4% pace in 2023, which is down from our previous call of 2.9%.”

The Federal Reserve is set to meet next week and raise interest rates for the first time in several years following an extremely accommodative monetary policy throughout the coronavirus. But rampaging inflation and declining growth makes the Fed’s task of combating inflation even trickier.

“The Fed is way, way behind the curve,” says Dan North, senior economist at Euler Hermes North America. North cites not only the Fed’s maintaining zero interest rates for too long but also the $9 trillion the central bank has on its balance sheet and clogged supply chains. “More than anything though, the Fed is responsible for creating its own mess.”

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