High Gas Prices and Cost of Living Push US Consumer Sentiment to Record Low
High gas prices cost of living – American consumers are facing unprecedented economic strain, with sentiment indicators hitting a new historic low in May. The University of Michigan’s latest survey reveals that the May consumer sentiment index plummeted to 44.2, marking the third consecutive month of decline and surpassing the previous record of 49.8 set in April. This sharp drop reflects a growing sense of despair over rising living costs, exacerbated by ongoing inflation and the ripple effects of the US-Israeli conflict in Iran.
War, Oil Shocks, and Inflation Fuel Dismal Outlook
The ongoing conflict between the US and Iran, which disrupted oil supplies through the Strait of Hormuz, has compounded existing economic challenges. For nearly three months, the chokehold on this critical shipping route has driven global oil prices to near-record levels, further burdening households already struggling with affordability. Joanne Hsu, director of the university’s Surveys of Consumers, noted that these factors have deepened consumer anxiety. “The cost of living remains a top priority for many, with 57% of respondents spontaneously mentioning high prices as a direct threat to their financial stability,” she stated in a recent analysis.
“The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month,” Joanne Hsu, director of the university’s Surveys of Consumers, wrote in a statement.
According to Hsu, the financial impact of these pressures has been stark. Personal finances for consumers dipped by 13% in May, a sign of declining confidence. The survey, which has tracked consumer attitudes since 1952, now shows a level of pessimism that outstrips major historical events such as the 1970s oil crisis, the aftermath of the 9/11 attacks, the Great Recession, and the pandemic. “This downturn is worse than any of those periods, including the inflation surge that followed the pandemic,” she added.
Demographic Disparities in Economic Stress
The survey highlights significant disparities among different groups. Lower-income consumers and those without college degrees reported the most pronounced declines in sentiment. These demographics are particularly vulnerable to surging fuel and essential costs, which have become a daily reality. “Fuel price increases, alongside other essentials, have hit these groups harder, creating a more urgent sense of financial uncertainty,” Hsu explained.
Meanwhile, the sustained spike in gas prices has intensified concerns about economic sustainability. With the Strait of Hormuz remaining a bottleneck for oil shipments, consumers are grappling with the possibility of prolonged price shocks. Hsu remarked that earlier in the year, people may have been hopeful the Iran conflict would resolve quickly, but three months later, that optimism has faded. “Consumers now appear to fear that supply chain disruptions will persist, leaving them without clear relief,” she said.
Inflation Expectations Rebound to Pre-Pandemic Levels
Consumer inflation expectations have also risen, with the year-ahead projection climbing to 4.8% from 4.7% in April. The five-year rate jumped to 3.9% from 3.5%, aligning with the inflationary pressures seen late last year due to tariffs. This uptick suggests that people are beginning to anticipate a prolonged period of price increases. “The sense of rising costs is not just temporary—it’s becoming a long-term concern,” Hsu highlighted.
“For the latter group, long-run inflation expectations are currently more than double their February 2025 reading on a monthly basis,” she said.
The Federal Reserve closely monitors these expectations, as they influence monetary policy decisions. If consumers believe prices will keep climbing, they may accelerate spending now, pushing businesses to raise prices to meet demand. This dynamic could fuel further inflation, creating a self-reinforcing cycle. “Inflation expectations act as a signal for how households and firms will behave,” Hsu noted.
Stock Market Highs Contrast with Consumer Struggles
Despite these challenges, the US economy continues to show resilience. Stock markets have reached record highs, and a wide range of economic data suggests strength in employment, production, and consumer spending. Yet, this optimism does not translate to widespread consumer satisfaction. “The American consumer is treading water, and income tax refunds have already been spent,” Christopher Rupkey, chief economist at FwdBonds, observed in a statement to investors.
“The American consumer is treading water here, and the income tax refunds must be gone already or the money spent on the higher prices seen everywhere in the economy,” Christopher Rupkey, chief economist at FwdBonds, wrote in a statement to investors Friday.
Rupkey argued that the stock market’s gains are not influencing consumer behavior, as many households are locking money into retirement accounts like 401Ks. “These accounts provide security but limit immediate access to funds,” he said. This phenomenon underscores a divide between financial markets and everyday consumers, with the latter still feeling the weight of inflationary pressures.
Broader Implications of Dismal Sentiment
The persistent decline in consumer confidence could have long-term consequences for the economy. With households increasingly wary of future spending, businesses may face reduced demand, potentially slowing growth. Hsu emphasized that the survey’s findings reveal a broader trend: “Americans are not just reacting to current costs—they’re preparing for a sustained period of economic uncertainty.”
However, the situation is not uniformly bleak. Some consumers remain hopeful, citing government assistance programs or job market stability as mitigating factors. Yet, the majority are caught in a cycle of rising expenses and stagnant incomes. “This sentiment reflects a collective realization that the economic challenges are here to stay,” Rupkey added.
As the conflict in Iran continues, the outlook for consumer confidence remains clouded. The Federal Reserve and policymakers are under pressure to address these concerns, balancing inflation control with growth stimulation. For now, the data suggests that the American consumer is not only facing immediate financial strain but also a growing fear of prolonged economic hardship. “The combination of high prices and uncertainty is creating a perfect storm for household budgets,” Hsu concluded.
