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Saturday, October 19, 2019
HomeNewsEconomyInflation, Rate Hikes Hurt Preliminary Consumer Sentiment in August

Inflation, Rate Hikes Hurt Preliminary Consumer Sentiment in August

Consumer Spending and Consumer Sentiment. (Photo: AP)
Consumer Spending and Consumer Sentiment. (Photo: AP)

Consumer Spending and Consumer Sentiment. (Photo: AP)

The Survey of Consumers preliminary reading finds the Index of Consumer Sentiment slipped to 95.3 in August, the lowest level since September 2017. The decline was driven exclusively by reactions to interest rate hikes from households in the bottom third of the income distribution.

The Current Economic Conditions index fell from 114.4 in the final reading for July to 107.8 in the preliminary reading for August. The Index of Consumer Expectation held steady at 87.3.

“The dominating weakness reflected much less favorable assessments of buying conditions, mainly due to less favorable perceptions of market prices,” Richard Curtain, the chief economist at Survey of Consumers, said. “Buying conditions for large household durables sank to the lowest level in nearly four years.”

“When asked to explain their views, consumers voiced the least favorable views on pricing for household durables in nearly ten years, since October 2008.”

Consumers also expressed that it was a less favorable time to buy automobiles. Prices were seen less favorably than at anytime since the close of 1984. With the economy improving, the Federal Open Market Committee has increased interest rates and the rate at which they will ascend after years of being held at near-zero.

Interestingly, consumers said they expect an inflation rate for the year ahead of 2.9%. That’s unchanged from their views the previous month. Still, after years of skirting the impact of interest rates, Mr. Curtain said consumers are more “sensitive” to even low inflation rates.

“The data suggest that consumers have become much more sensitive to even relatively low inflation rates than in past decades,” he said. “As is usual at this stage in the business cycle, some price resistance has been neutralized by rising wages, although the falloff in favorable price perceptions has been much larger than ever before recorded.”

“Overall, the data indicate that consumers have little tolerance for overshooting inflation targets, and to the benefit of the Fed, interest rates now play a more decisive role in purchase decisions.”

Written by
Staff Writing Group

PPD Business, the economy-reporting arm of People's Pundit Daily, is "making sense of current events." We are a no-holds barred, news reporting pundit of, by, and for the people.

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