“This sentiment index is highly negatively correlated to inflation, and so the declines over the last few months reflect the reckoning with the cumulative inflation of the last year,” said Jefferies money market economist Thomas Simons in a note to clients.
Price hikes, along with the potential impact from Russia’s invasion of Ukraine are the greatest source of uncertainty for Americans, said Richard Curtin, chief economist at the Surveys of Consumers.
While high inflation was already affecting household finances, higher gas costs are just adding fuel to the fire.
The number of Americans who predict their personal finances will worsen this year reached the largest proportion since the consumer survey started in the mid-1940s, according to Friday’s report.
“Consumers held very negative prospects for the economy, with the sole exception of the job market,” said Curtin.
But the strong labor market also means the pressure is on businesses to raise wages to compete for staff. While that’s not a main driver of inflation so far, it adds to the price pressure in the economy.
“Like the game of musical chairs, everyone continues racing around the circle of rising prices and higher wages,” said Curtin.