Inflation is getting worse and consumers aren’t happy about it, a pair of closely watched reports revealed Friday.
The core personal consumption expenditures price index, the Federal Reserve’s preferred inflation metric, was at a higher-than-expected 2.8% in February, up from 2.4% a month earlier. Consumer sentiment also fell 12% in the latest March reading, the third consecutive monthly decline, and consumer expectations of the future plunged 18%.
Shoppers’ view of current economic conditions worsened roughly 3% from February to March and 23% from this time last year. Consumers are even gloomier about the future, with consumer expectations falling 18% on the month and 32% on the year.
The reports bring hard data points the Federal Reserve uses to make decisions about the economy, including closely watched interest rates.
“This month’s decline reflects a clear consensus across all demographic and political affiliations; Republicans joined independents and Democrats in expressing worsening expectations since February for their personal finances, business conditions, unemployment, and inflation,” Joanne Hsu, the University of Michigan director behind the report, said in a statement.
The data suggest that President Donald Trump’s early moves to rebalance global trade are leading to growing costs and also worrying shoppers. A new wave of tariffs is scheduled to go into effect April 2.
Nearly two out of three consumers surveyed expect unemployment to rise this year, the highest level since 2009. Inflation expectations are at their highest reading since November 2022 and have been getting worse by the month.
While the broader PCE index, which includes food and energy prices, also ticked up to 2.5% in February, the government’s Bureau of Economic Analysis data shows that shoppers still increased spending in February.
Cars and car parts, groceries, and recreational goods and services all saw spending increase from the prior month, while there was a decline in energy spending and a 15-point drop in food services and accommodations.
The elevated inflation reading and soft consumer expectations spooked markets Friday, with the Dow Jones Industrial Average plummeting by more than 500 points in early trading. The index is down 4.8% over the last 30 days, a 2,100-point decline.
The Nasdaq was down more than 2%, adding to steep losses this month, and the S&P 500 slipped more than 1.5%.
Trump’s whipsawing tariff proclamations, along with questions about the economic impact of his immigration policy and tax proposals, has led to an equity selloff and debate about whether a recession is imminent.
The Federal Reserve has tried to navigate the profound uncertainty injected into the economy by Trump’s policy moves by effectively stopping to take a breath.
“There’s really high uncertainty,” Fed Chair Jerome Powell said during a press conference this month after the Fed’s board voted to keep rates flat.
“We think our policy is in a good place and that we can move when we need to,” he said. “But right now we think it’s appropriate to wait and, given where the economy is right now, we think the price of doing that is very low.”
Powell said Fed officials are operating under the assumption that increased inflation from tariffs will be transitory, and the central bank is waiting to see the impacts of what it forecasts will be a one-time price hike.
But Powell also said it was prepared for a wide variety of outcomes and the Fed would act quickly if inflation proves to be stickier than expected.
Fed officials stress that their focus is on measurable economic impacts and not sentiment surveys. The central bank got both Friday.
“The hard data are still in reasonably good shape. It's the soft data, it's the surveys, that are showing significant concerns, downside risks and those kinds of things,” Powell said this month. “We don't dismiss that, we're watching carefully, but we don't want to get ahead of that.”
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