Households Expect Inflation to Soar to 6.5% as They Sour on the Economy

Consumer sentiment continues to be buffeted by tariffs and worries about inflation.

Sentiment is souring so much that, as the University of Michigan found in its final reading for April, consumers think prices are going to increase at the fastest pace since 1981.

The overall reading indicated that sentiment fell to 52.2 this month from the March reading of 57. Although the final number was a bump up from the 50.8 that had previously been logged this April, in the words of Survey Director Joanne Hsu, “consumers perceived risks to multiple aspects of the economy, in large part due to ongoing uncertainty around trade policy and the potential for a resurgence of inflation looming ahead.” 

Per her comments, “labor market expectations remained bleak.”

Steady and Steep Declines in Sentiment

We’re now at lowest consumer sentiment level since July 2022, and 32.4% under the levels of April 2024. This represents an 8.4% decline from March, following decreases in March (-11.9%), February (-9.8%), and January (-3.1%). Over 2025, the index decreased 29.5%, its biggest loss for a 4-month period since the 2000s.

The current economic conditions index declined 6.3% from last month, reaching 59.8 points, the lowest since 2023 and falling 20.4% since the beginning of the year and 24.3% compared to April 2024.

As for what lies ahead, consumers are more concerned about the future as the expectations index plummeted 10.1% this month, with drop-offs in personal finances as well as business conditions. In 2025, this index dropped 35.5%, the steepest since the 1980s even with recessions in 1990, 2008 and 2020.

Connecting the dots through the last several months reveals that macro pressures are coming to bear, steadily, on household finances, and increases worries about security — both financial security and job security.

Expectations for the labor market remained pessimistic. More troubling for the economic outlook: many consumers projected slower income growth for themselves in the coming year. With income growth appearing uncertain, maintaining robust spending levels seems unlikely given the multitude of warning signs that consumers have observed. 

Indeed, as PYMNTS Intelligence has found, in the current environment, the balancing act between planning over the long term, and reacting to immediate pressures have stood out in stark relief. As detailed, planners take a strategic and proactive approach, consistently paying off credit card balances, amassing savings both short term and for the long haul and preparing for future expenses. 

On the other end of the spectrum, reactors cope with their monthly bills on the fly as they arise, sometimes choosing which ones to pay. They typically carry higher credit card balances and have less saved, making them more reliant on credit when unexpected costs surface. Only 40% of consumers identified as planners as 2025 has brought new pressures — a roughly 20% plunge since February 2024, when roughly one in two were planners.

“The decline suggests more Americans are facing mounting financial strain,” PYMNTS wrote earlier this month.

Short-Term Inflation Expectations Jump

Short-term inflation expectations (one-year expectations) surged from 5% in March to 6.5% in April, the highest level since 1981. Long-term inflation expectations (5-years expectations) increased from 4.1% to 4.4%, the highest since 1991. Inflation expectations shifted in response to significant trade policy developments this month. Following the partial suspension of tariff increases on April 9, expectations eased slightly but stayed notably higher compared to March.

 

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