Inflation Fears Are Throwing The Vibes Off

Like parlayers seeing their team’s wide receiver on a stretcher mid-game, Americans are feeling less optimistic about their wallets. Central to their concerns is a sense that prices will rise faster as tariffs begin to materialize.

The closely-watched monthly consumer survey published yesterday by the University of Michigan shows a growing uneasiness:

• Consumer sentiment dropped to a seven-month low in early February, decreasing by almost 5% from January.
• Americans now anticipate prices will rise 4.3% in the year ahead, a jump from last month’s expectation of 3.3% to the highest expected inflation rate since fall 2023.

What’s souring the mood? It could be the timing of the poll, which happened soon after President Trump threatened to hit major US trading partners Canada and Mexico with blanket 25% tariffs. Most economists agree that would cause companies to pass down the cost of import duties to shoppers. Though the tariffs on both country’s goods were postponed by a month shortly before they were due to kick in this week, a 10% blanket tariff was imposed on China, and Trump threatened to impose import duties on EU products as well.

Consumer sentiment dropped for all the ways the survey measures perceived economic wellbeing, plunging the most for feelings about large purchases. UMich’s survey director Joanne Hsu interprets this as a sign Americans believe it's “too late” to avoid tariffs’ impacts. Notably, the pessimistic turn happened among respondents across the political spectrum.

Companies have tariff jitters, too

Bloomberg projects that the t-word is on track to be mentioned 900 times in 2024 Q4 earnings calls for US and European public companies, compared with 367 in the preceding quarter.

And the context usually isn’t “we can’t wait for tariffs!”: Goldman Sachs projects that every 5% increase in US tariffs would shave off up to 2% from S&P 500 earnings per share, as companies contend with higher import costs.

One item that’s already pricier...is gold. Anticipation of metals tariffs got traders rushing to ship gold bars to the US and hoard them in New York vaults, creating a gold shortage in London.—SK