Daily Management Review

US Consumer Confidence Declines As Predictions For Inflation Rise


US Consumer Confidence Declines As Predictions For Inflation Rise
Consumer confidence in the United States declined in April, and households projected higher prices for the upcoming year and beyond. These developments probably gave the Federal Reserve more justification to postpone lowering interest rates until September.
The University of Michigan study, released on Friday, came after statistics released this week indicated that consumer prices grew more than anticipated in March for the third consecutive month.
Financial markets and most economists drastically reduced their estimates for the first rate decrease from the U.S. central bank to September from June due to persistently high inflation and a robust labour market. Additionally, they have reduced the number of projected rate decreases from three to two.
However, despite a little increase in producer prices last month, inflation is not out of control. Additional statistics released on Friday confirmed that import costs, excluding fuels, increased very little in March following a sharp increase at the beginning of the year.
Chief economist at Raymond James Eugenio Aleman stated, "This increase in inflation expectations is not what the Fed wants to see, but despite the increase, they remain in line with the recent trend and are well-anchored."
This month's preliminary estimate of the University of Michigan's overall index of consumer sentiment was 77.9, down from a final score of 79.4 in March.
The sentiment index hasn't changed much since January; it's been about 2.5 points, far less than the 5 points the University of Michigan claimed was required for a statistically significant shift. Reuters polled economists, who predicted a preliminary reading of 79.0.
On a bank fraud allegation, the former translator for Japanese baseball player Shohei Ohtani made his initial court appearance on Friday. The accusation was that he stole $16 million from the LA Dodgers to pay off debts related to illicit gambling.
Even though the stock market was soaring, there was a decline in sentiment that was probably caused by rising petrol costs. This month, Democrats expressed greater optimism than Republicans or independents.
"Overall, consumers are reserving judgment about the economy in light of the upcoming election, which, in the view of many consumers, could have a substantial impact on the trajectory of the economy," said Joanne Hsu, the director of the University of Michigan's Surveys of Consumers.
The survey's measurement of one-year inflation expectations rose slightly beyond the 2.3%–3.0% range observed in the two years prior to the COVID-19 epidemic, from 2.9% in March to 3.1% in April. The five-year inflation outlook for the survey increased from 2.8% in the previous month to a five-month high of 3.0%.
Wall Street stocks were trading at a lower level. In relation to a currency basket, the dollar increased. Bond rates in the US decreased.
According to data released by the Bureau of Labour Statistics of the Labour Department, import prices increased by 0.4% in March following an unrevised 0.3% increase in February. Tariff-free import prices were predicted by economists to increase by 0.3%.
Through March, import prices increased by 0.4% over the previous 12 months. It came after a 0.9% decrease in February and marked the first annual increase since January 2023.
Following a 1.3% increase in February, import fuel prices rose by 4.7% in March. While natural gas prices fell 31.9%, petroleum prices increased 6.0%. The price of imported food increased by 1.6% in the previous month, following a 0.3% increase.
Food and gasoline were excluded, therefore import prices remained the same. In February, these so-called core import prices increased by 0.1%. In March, core import prices decreased 0.4% year over year.
Excluding fuels, import costs increased by 0.1% after increasing by 0.2% the previous month. They did not change from year to year.
"Fed officials cannot lower their guard and rate cuts this year may not be as numerous as earlier forecasts had projected," said Christopher Rupkey, chief economist at FWDBONDS. "But at least the slower increase in import prices is good news, adding to the producer prices report yesterday, that inflation pressures may not be raging completely out of control."
Susan Collins, the president of the Boston Fed, stated to Reuters on Friday that she plans to lower interest rates once this year. Since March 2022, the U.S. central bank has increased the benchmark overnight interest rate by 525 basis points, bringing it to its current range of 5.25% to 5.50%, where it has been since July.
Imported capital goods prices decreased by 0.3% in the previous month, which would indicate a slowdown in corporate investment. Engines, auto components, and vehicle costs increased by 0.2%. Prices of imported goods, excluding automobiles, decreased by 0.3%.
For the second consecutive month, China import costs decreased by 0.1%. In March, they had a 2.6% decline on an annual basis. However, the cost of items imported from Mexico and Canada grew significantly.
"With market rate-cut expectations declining in recent weeks, the dollar has rallied and bucked previous expectations for a gradual weakening," said Matthew Martin, a U.S. economist at Oxford Economics.
"The benefit, from an importer's perspective, is that a stronger dollar makes imports relatively cheaper and would support lower import price inflation in the months ahead."