Consumer Inflation Expectations Skyrocket In March, Hit Highest Levels In 32 Years

The preliminary reading had already raised eyebrows among investors, yet the final data turned out even worse than feared.

Five-year ahead inflation expectations — which reflect American consumers' perceptions of more structural inflation concerns — jumped to 4.1% in March, according to the final report released by the University of Michigan.

This marks an upward revision from the preliminary estimate of 3.9%, bringing the gauge to its highest level since February 1993.

Inflation concerns for the next 12 months were also upwardly revised from 4.9% to 5%, marking the highest since July 2022.

Chart: 5-Year Consumer Inflation Expectations Rose Over Three-Decade Highs

Consumer Sentiment Sinks In March, Inflation Fears Go Haywire

The University of Michigan's headline consumer sentiment index was revised down to 57.0 in March from a preliminary 57.9, plunging from 64.7 in February. This is the weakest reading in consumer sentiment since November 2022.

“Consumer sentiment confirmed its early month reading and fell for the third straight month, plummeting 12% from February,” Surveys of Consumers director Joanne Hsu, said in a Friday’s note.

The subindex tracking consumer expectation was downwardly revised from 54.2 to 52.6, hitting the lowest since July 2022.

“The expectations index plunged a precipitous 18% and has now lost more than 30% since November 2024,” Hsu added.

The subindex for current conditions witnessed a minor improvement from 63.5 to 63.8, yet still marking a nearly 3% decline from February.

Labor Market Concerns Rise

The report also highlighted growing concerns about the labor market. Consumers remain uneasy about potential economic fallout from current policy developments. Strikingly, two-thirds of respondents now expect unemployment to increase over the next year — the highest level since 2009.

This trend underscores a critical vulnerability, as resilient labor markets and steady incomes have been the main pillars sustaining consumer spending in recent years.

Market Reactions

Earlier this month, Fed Chair Jerome Powell dismissed the University of Michigan's survey-based inflation expectations as an "outlier," downplaying its significance.

Investors, however, appear to disagree.

Major U.S. equity indices dropped sharply on Friday following the release of the final University of Michigan inflation data, which triggered an even stronger market reaction than the hotter-than-expected reading of the Fed's preferred inflation gauge earlier in the day. The S&P 500 — tracked by the SPDR S&P 500 ETF Trust SPY — fell 1.1%, while the tech-heavy Invesco QQQ Trust QQQ underperformed with a 1.3% decline. The Dow Jones Industrial Average also slid 0.9%.

Lululemon Athletica Inc. LULU led losses within the S&P 500 index, plunging 15% after reporting weaker-than-expected earnings.

Excluding Lululemon, consumer discretionary stocks — particularly those tied to the travel and leisure sectors — bore the brunt of the negative sentiment following the University of Michigan consumer data.

Shares of Royal Caribbean Cruises Ltd. RCL sunk 3.1%, heading for a fourth straight session of declines, while MGM Resorts International MGM plummeted 4.3%.

Within Magnificent Seven stocks, Amazon.com Inc. AMNZ was the underperformer, down 3%, followed by Meta Platforms Inc. META, down 2.2%.