Consumer sentiment plummets to record low as Iran war jacks up inflation

Washington (CNN) — Consumer sentiment plummeted to its lowest level on record due to frustration with price spikes from the US-Israeli war with Iran.

The University of Michigan’s latest consumer survey released Friday showed that sentiment declined 11% early this month to a reading of 47.6, lower than anything seen in the post World War II era, including during the Great Recession, the pandemic downturn and the historic inflation surge afterward.

“Open-ended comments show that many consumers blame the Iran conflict for unfavorable changes to the economy,” Joanne Hsu, the survey’s director, said in a release.

“Demographic groups across age, income, and political party all posted setbacks in sentiment, as did every component of the index, reflecting the widespread nature of this month’s fall,” she added.

However, nearly all of the survey responses were collected before President Donald Trump announced a temporary — and increasingly fragile — ceasefire with Iran earlier this week. Hsu said sentiment “will likely improve after consumers gain confidence that the supply disruptions stemming from the Iran conflict have ended and gas prices have moderated.”

Meanwhile, Americans’ expectations for inflation in the year ahead surged a full percentage point early this month to 4.8%, the biggest monthly increase in a year, when Trump unveiled his sweeping “Liberation Day” tariffs. Expectations for inflation over the long term, in the next five to 10 years, saw a more modest uptick, rising to 3.4% from 3.2% in March, the highest level since November.

In a separate report Friday, the Bureau of Labor Statistics reported that the Consumer Price Index surged 0.9% in March, the sharpest monthly increase since 2022, pushing the annual rate to 3.3%, the highest in nearly two years.

“Rising gas, diesel and airfare prices are already surging and squeezing American households,” Heather Long, chief economist at Navy Federal Credit Union, said in commentary issued Friday.

“This is only the beginning,” she added.

The implications of America’s pessimism

While record-low sentiment itself is troubling, economists care far more whether it affects consumer spending, which accounts for about two-thirds of the US economy.

US consumers pulling back would put businesses under pressure by lowering their profits, taking a toll on economic growth, then eventually triggering a recession. In February, before the escalation of the Iran war, consumers spent at a solid clip, according to Commerce Department data released earlier this week.

Bouts of pessimism in recent years did not translate into weaker spending, such as during the post-pandemic inflation surge and last year’s tariff spree. And that may remain the case this time around, so long as the US labor market does not deteriorate, economists say. While average job growth over the past three months, smoothing out large monthly swings, remains weak, unemployment also remains historically low, at 4.3%. New applications for unemployment benefits also show that companies are holding on to their workers for now.

But investors and economic policymakers broadly believe there is still an uncomfortable risk of unemployment climbing. And once layoffs start to surge, that will likely force Americans to cut back, especially with sentiment down in the dumps.

“Negative sentiment is just one of the several ways by which the Iranian conflict will permeate through the US economy,” Oren Klachkin, financial market economist at Nationwide, said in analyst note Friday. “With the conflict far from resolved, we expect to see softer readings ahead.”

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