Inflation Fears Surge As Economic Expectations Plunge

Americans grew more pessimistic about the economy in September as inflation expectations surged and consumers braced for higher fuel prices and renewed trade tensions, according to data released Friday.

The University of Michigan’s Index of Consumer Sentiment fell to 48.1 in September, down 7% from August and 12.7% from a year earlier, according to the university’s final September survey. The deterioration was concentrated in consumers’ outlook for the future, with the Index of Consumer Expectations plunging 10.1% in a single month to 46.3, while views of current economic conditions slipped just 1.9%.

Inflation fears also accelerated sharply. Consumers expected prices to rise 4.6% over the next year, up from 4.0% in August and the highest reading since June. The reading was also well above the 3.4% recorded in February before the Iran conflict began.

Inflation expectations can influence future inflation. Businesses and workers can respond to expectations of higher prices by adjusting prices and wages, potentially reinforcing inflation, according to the Federal Reserve.

The Fed closely watches whether inflation expectations remain anchored for that reason. Expectations that become persistently elevated can contribute to a self-reinforcing cycle in which anticipation of higher inflation affects economic behavior and helps push actual inflation higher.

Long-run inflation expectations also edged up to 3.4% from 3.3%, ending three consecutive months at 3.3%. The measure remained above its entire 2024 range of 2.8% to 3.2%.

“Consumer sentiment ticked down less than four index points in September, reaching the lowest reading in four months,” Surveys of Consumers Director Joanne Hsu said in the final release.

Consumers’ views of both their current and expected personal finances deteriorated during the month, while worries about high prices continued to rise, according to Hsu. The short-term outlook for business conditions also deteriorated sharply as consumers expressed renewed concern that higher fuel costs and escalating trade disputes could spill over into the broader economy.

The university’s September featured chart found concerns about gasoline prices and tariffs were both contributing to changes in consumers’ inflation expectations.

Economic expectations weakened across partisan groups. Republican consumer expectations were 28% below their February 2025 level by September, while expectations among independents were down 22% and those among Democrats fell 13%.

Hsu said overall sentiment among Republicans fell 20% from January, compared with a 13% decline among Democrats over the same period.

Despite the broader deterioration, consumers reported slightly better conditions for purchasing durable goods. The survey found some respondents viewed buying sooner as a way to avoid potentially higher prices later.

The final sentiment reading of 48.1 was slightly stronger than the university’s preliminary September estimate of 47.8, but remained well below August’s 51.7 reading.

The University of Michigan is scheduled to release its preliminary October consumer survey on Oct. 9.