Inflation Anxiety Rises Again! US August Consumer Confidence Drops to 51, One-Year Inflation Expectations Jump to 4.3%

US consumer confidence declined in August for the first time in three months, as rising living costs, sluggish wage growth, and escalating gasoline prices due to Middle East conflicts intensified household concerns about inflation and the economic outlook.

The University of Michigan reported on Friday (the 14th) that the preliminary consumer sentiment index for August dropped from 55.2 in July to 51.0—below the market expectation of 55—and ending two consecutive months of improvement. The index measuring current economic conditions fell from 54.8 to 51.8, while the consumer expectations index plunged from 55.4 to 50.6, both underperforming market forecasts.

US August consumer confidence fell for the first time in three months. (Image: ZeroHedge)

Survey results show deteriorating consumer views on both short- and long-term economic prospects, with expectations for future business conditions declining by 11% in the short term and 17% in the long term. Labor market expectations have remained largely unchanged since the beginning of the year, but households are now more concerned about inflation than unemployment risk.

Consumers expect prices to rise by 4.3% over the next year, slightly higher than July’s 4.2%, and significantly above the 3.4% recorded before the Iran conflict erupted in February, as well as all survey results throughout 2024. Long-term inflation expectations for the next five to ten years remained steady at 3.3% for the third consecutive month, also slightly above the 2024 range of 2.8% to 3.2%.

Consumers expect prices to rise by 4.3% over the next year. (Image: ZeroHedge)

Joanne Hsu, director of the University of Michigan’s Surveys of Consumers, stated that the decline in confidence was widespread across demographic groups, with particularly sharp drops among older adults, low-income households, and those without college degrees—groups more vulnerable to inflation’s erosion of purchasing power.

Only 8% of respondents expected their income growth to outpace inflation over the next year, down sharply from 18% in December 2024, reflecting that high prices continue to weigh heavily on households. Government data released earlier this week also showed that real average hourly earnings in July declined 0.2% year-on-year, continuing the weak trend since the outbreak of the Iran war.

Consumer confidence weakened across political affiliations in August, with Republican supporters seeing the largest single-month drop. Their confidence level is now 19% lower than before the Iran conflict and has fallen to the lowest since the 2024 election.

The survey period ran from July 28 to August 10, during which the national average gasoline price remained above $4 per gallon. Another report indicated that US retail sales in July posted their largest decline in over a year. With both consumer confidence and retail sales weakening simultaneously, coupled with recent cooling in consumer and producer prices, the case for a near-term rate hike by the Federal Reserve (Fed) has further diminished.