The University of Michigan’s Index of Consumer Sentiment snapped a two-month growth streak in August, falling to 51.7 from 55.2 in July. At the same time, the reading topped the consensus estimate of 51.0 and improved from August’s preliminary figure of 51.0. Furthermore, year-ahead inflation expectations dropped to 4.0% from 4.2% in the prior month. That compares to expectations of 3.4% in February before the onset of the U.S.-Iran war. Gas prices have climbed 37% since then, contributing significantly to higher inflation.
Gas Price Surge Weighs On Consumer Confidence
Consumers expect gas prices to keep rising as the war drags on. Recently, President Trump shifted his approach to targeting Iran’s economy instead of using military force. That comes as Iran continues to restrict traffic through the Strait of Hormuz, squeezing global oil supply. The waterway handles roughly 20% of global oil flows.
Meanwhile, the drop in sentiment was seen across all political groups, but especially among Republicans. Consumers with zero exposure to the stock market also faced a sharp dip in sentiment.