Mark Hamrick writes: The war against inflation has not yet been won. As a result, consumers are still in the trenches. Elevated prices are the culprit.
Just like consumers, the Federal Reserve has been hoping for better progress on inflation. Their preferred measure, the Core Personal Consumption Expenditures price index, has been stuck above their 2% price target. That’s seen in the latest reading with a year-over-year increase of 2.8%, rising from the previous month. This throws some cold water on hopes for an interest rate cut in the near-term.
Making matters worse, the Trump administration is signing consumers up for more bad news on prices, given that tariffs are taxes on goods imported into the U.S.
Consumers have expressed their concern in deteriorating sentiment surveys. Indeed, the University of Michigan’s closely watched March survey finds that “Consumer sentiment confirmed its early month reading and fell for the third straight month, plummeting 12% from February.”
The risk is that this goes beyond attitudes and infects behavior. Spending was outpaced by incomes in February, suggesting some consumers are opting to go to the sidelines to wait for more clarity on prices and taxes on imports. Spending adjusted for inflation was up 0.1% in February. Many are also worried about job security as hiring slows and job cuts dominate headlines.
