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US Consumer Sentiment Plummeted; Inflation at a Record High

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US Consumer Sentiment Plummeted; Inflation at a Record High

US — Since the US Federal Reserve first started to hike interest rates, consumer sentiment has begun to deteriorate, a natural reaction from the general population. The hike comes after a prolonged inflated US economy artificially injected with the much-needed financial stimuli during the height of the COVID-19 pandemic in the US.

However, with the unprecedented expansionary measures implemented, a “galloping inflation” subsequently loomed over the US economy. Last month, the US registered a whopping 8.6% inflation rate. If the US Federal Reserve did not implement a bitter medicine in the form of rate hikes, we might be in a galloping inflation territory this year. This kind of inflation occurs when inflation rises to 10% or more, this will cause chaos in the economy. The US dollar would lose value quickly, and businesses’ profits and individuals’ personal income will hardly keep up with the rising prices and costs. In fact, even if the US Federal Reserve avoided this kind of inflation, the US is still experiencing these challenges on a muted level.

The Declining State of US Consumer Sentiment

On Friday, June 10. The renowned University of Michigan’s Monthly Index published its monthly installment of the US consumer sentiment. In the paper, the preliminary June sentiment index results declined to 50.2, a staggering 8.2 points slashed from May’s 58.4, a 14% decline in a month. The notable result officially landmarked this month as the lowest reading in the index’s history. Moreover, the result suggests a growing pessimism stance of the US public towards the current state of the economy, as inflation continues to stay above the target of the US Federal Reserve.

Likewise, the University of Michigan’s Consumer Expectation Index, which tracks the near future outlook of consumers, has followed the same trajectory. The index fell to 46.8, down by 8.4 points from last month’s 55.2, a 15% decline in a month. Lastly, the Current Economic Conditions Index fell to 55.4, down by 7.9 points from last month’s 63.3, a 12% decline from the previous month’s consensus.

According to the Director of the University of Michigan’s Survey, Joanne Hsu, “Throughout the survey, consumers signaled strong concerns that inflation will continue to erode their incomes, and the factors they cited are unlikely to abate soon.”

The Impact of Inflation Numbers

Hsu hinted that the result had been significantly impacted by the most recent Consumer Price Index (CPI) report released by the US Bureau of Labor Statistics which revealed an alarming 40-year record inflation rate of 8.6%, fueling the worries of US consumers.

Among the noteworthy cause of the record-high inflation include the sharp rise in energy prices in the US caused by the ongoing Ukraine-Russia war. In fact, the national average for a gallon of gasoline reached for the first time in US history the $5 mark. In addition, rising commodity prices and global supply chain issues have also driven the inflation rate.

Finally, with the current high inflation, the US Federal Reserve will most likely raise its benchmark interest rate by at least 50 basis points as a fresh addition next week at the FED policy-making meeting.

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