U.S. Consumer Sentiment Fell in Early July on Higher Inflation Expectations

Consumer sentiment in the U.S. declined in early July as Americans' prospects for the national economy deteriorated amid concerns over high inflation.

The preliminary estimate of the index of consumer sentiment released Friday by the University of Michigan came in at 80.8 in July, down from 85.5 in June. The reading missed expectations from economists polled by The Wall Street Journal, who forecast the indicator to increase to 86.3.

The decline was caused by a misjudgment by consumers in the pace that the economy would recover as the pandemic eased, said Richard Curtin, the survey's chief economist. This involved both underestimating the economy's ability to reactivate supply lines and restore jobs, and the resulting impact on inflation, he said.

"Rather than job creation, halting and reversing an accelerating inflation rate has now become a top concern," Mr. Curtin said.

Americans' expected inflation rate rose in July compared with June, the survey showed. For the next year, consumers expect prices to increase 4.8% compared with a 4.2% rise in June. For the next five years, inflation is expected to stand at 2.9%, up from 2.8% the prior month.

Consumers' complaints about rising prices on homes, vehicles and household durables has reached an all-time record, Mr. Curtin said. Inflation is hitting particularly lower and middle-income households, albeit purchase rates have benefited from record increases in accumulated savings, he said.

The decrease in consumer sentiment in early July leaves the index at still subdued levels, well below the 101.0 reading registered in February 2020, before the Covid-19 pandemic hit.

Rising virus cases in some parts of the country due to the spread of the Covid-19 Delta variant also could weigh on sentiment in the short-term, but consumers' mood should improve as activity normalizes further into the fall, economists say.

Consumers' assessment of the current economic conditions fell to 84.5 in July from 88.6 in June. The index of consumer expectations--which reflects the balance of respondents anticipating improved business conditions in the next six months--dropped to 78.4 from 83.5 the prior month.

The survey was conducted between June 23 and July 14. The final reading for the month will be published on July 30.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

  (END) Dow Jones Newswires
  07-16-21 1033ET
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