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-Editorial
Consumer sentiment dropped by 11% in March, marking the third consecutive month of decline, according to the latest report from the University of Michigan’s Surveys of Consumers. The decline was observed across all demographic and political groups, with sentiment now down 22% from December 2024.
While current economic conditions remained relatively stable, expectations for the future worsened across multiple economic indicators, including personal finances, labor markets, inflation, business conditions, and stock markets. Consumers cited uncertainty surrounding economic policies as a major factor affecting their outlook. The report noted that policy fluctuations have made financial planning more challenging for many consumers, regardless of political affiliation.
Consumers across political groups expressed a more pessimistic outlook compared to February. Republicans, despite higher confidence following the election, saw a 10% drop in their expectations index. Independents and Democrats experienced steeper declines of 12% and 24%, respectively.
Inflation expectations also increased, with short-term inflation expectations rising from 4.3% in February to 4.9% in March, the highest level since November 2022. This marks the third consecutive month of significant increases of 0.5 percentage points or more. Long-term inflation expectations also saw a sharp rise, climbing from 3.5% in February to 3.9% in March—the largest month-over-month increase since 1993. The report attributed this rise largely to shifting expectations among Independents.
The data highlights growing concerns among consumers about economic uncertainty and inflationary pressures, which could have broader implications for consumer spending and economic growth in the months ahead.
Following the COVID-19 pandemic in 2020, a global inflation surge began in mid-2021 and lasted until mid-2022, with many countries experiencing their highest inflation rates in decades. Economists have attributed the rise to several factors, including pandemic-related economic disruptions, supply chain challenges, and the fiscal and monetary stimulus enacted by governments and central banks in response to the crisis. Other preexisting factors, such as housing shortages, climate-related impacts, and government budget deficits, have also been cited as contributors.
By 2021, economic recovery had revealed significant supply shortages across multiple sectors. The situation was further exacerbated in early 2022 by the Russian invasion of Ukraine, which affected global oil, natural gas, fertilizer, and food prices. Rising fuel costs were a major driver of inflation, with oil producers reporting record profits. Debate arose over whether inflationary pressures were temporary or persistent, and whether price gouging played a role. In response, central banks worldwide—except for the Bank of Japan, which maintained negative interest rates until 2024—implemented aggressive rate hikes to curb inflation.
Inflation in the United States and the eurozone peaked in late 2022, with the U.S. recording its highest rate since 1981 and the eurozone reaching a record high since 1997. Inflation rates declined sharply in 2023, but some economists suggest that consumer prices may not return to pre-pandemic levels without a deflationary period, which is typically associated with recession. As of 2024, the United States was nearing its target inflation rate while continuing economic growth, a scenario often described as a “soft landing.”
A 2023 report from the International Monetary Fund identified food and energy costs as the primary drivers of inflation, with rising prices affecting living standards worldwide. In the European Union, 59% of businesses expressed concerns about energy prices, while 47% cited economic uncertainty as a major challenge. A higher percentage of EU businesses (93%) reported energy cost increases compared to U.S. firms (83%). The manufacturing sector was among the hardest hit, with a significant number of businesses reporting energy cost hikes of 25% or more.
Many economists have linked inflation in the U.S. to supply chain disruptions, which were largely driven by the pandemic. Strong consumer demand, supported by low unemployment and improved financial conditions, further strained supply chains. The U.S. government’s $5 trillion in aid spending also contributed to inflation, with researchers at the Federal Reserve Bank of San Francisco estimating that it added three percentage points to inflation by the end of 2021. Despite this, some economists argue that these measures were necessary to prevent deflation, which could have been more challenging to manage.
Rising consumer prices affected a wide range of goods and services, with inflation reaching a 30-year high. By mid-2022, fuel prices in the U.S. had increased by 49% compared to January of that year. Global labor shortages, particularly in manufacturing hubs such as Vietnam, further impacted the supply of goods, contributing to price increases.
Governments and central banks worldwide responded to rising inflation by increasing interest rates or adjusting monetary policies. Higher interest rates made borrowing more expensive, reducing consumer spending and slowing inflation—an approach known as inflation targeting. Some economists argue that deficit spending and tax cuts contributed to inflationary pressures, while tax hikes were viewed as deflationary.