Consumer Sentiment Plunges Amid Inflation Fears and Tariff Uncertainty

Consumer sentiment fell sharply in April 2025. The University of Michigan's preliminary Consumer Sentiment Index dropped to 50.8, down from 57.0 in March, the fourth consecutive monthly decline and the lowest reading since the COVID-19 pandemic. The driver was not current inflation data, which actually showed modest improvement, but tariff-related anxiety pushing year-ahead inflation expectations to 6.7%, the highest since 1981.

For commercial real estate operators, the divergence between actual price data and consumer expectations matters. Sentiment shapes spending decisions, lease renewals, and retailer expansion plans before the macro data catches up. VAC tracks this data to identify where caution is warranted and where the underlying fundamentals still support a disciplined business plan.

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Consumer Sentiment Index Hits Pandemic-Era Low

The University of Michigan's preliminary Consumer Sentiment Index for April plummeted to 50.8, a significant decrease from 57.0 in March. This marks the fourth consecutive monthly decline and represents the lowest level since the height of the COVID-19 pandemic. The index now sits perilously close to its all-time low recorded in mid-2022.

Key Data Points:

• Sharp Decline: The 11% month-over-month drop highlights a rapid deterioration in consumer confidence.
• Historical Context: The current reading is lower than any point during the Great Recession of 2008, except for the mid-2022 pandemic low.
• Widespread Pessimism: The decline was "pervasive and unanimous" across all demographics, including age, income, education, geographic region, and political affiliation.
• Rising Unemployment Concerns: The proportion of consumers expecting unemployment to rise in the coming year has increased for the fifth consecutive month, reaching its highest level since 2009.
• Surging Inflation Expectations: Year-ahead inflation expectations have soared to 6.7%, the highest since 1981, up from 5.0% in March. Long-run inflation expectations also increased from 4.1% to 4.4%.

Inflation Cools Slightly in March, But Concerns Remain

The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index for All Urban Consumers (CPI-U) decreased by 0.1% in March on a seasonally adjusted basis. Over the last 12 months, the all items index increased by 2.4% before seasonal adjustment, down from 2.8% in February.

Key Data Points:

• Monthly Decrease: The 0.1% drop in the overall CPI is the first monthly decline since May 2020.
• Annual Inflation Slows: The 2.4% year-over-year increase is the smallest since September 2023.
• Core Inflation Moderates: The index for all items less food and energy rose by 0.1% in March (seasonally adjusted) and 2.8% over the year (not seasonally adjusted), the smallest 12-month increase since March 2021.
• Energy Prices Decline: The energy index fell by 2.4% in March, driven by a significant 6.3% decrease in gasoline prices.
• Food Prices Continue to Rise: The food index increased by 0.4% in March, with the food at home index rising by 0.5%.

CPI Changes (March 2025):

Interplay of Sentiment and Inflation

The stark contrast between the slightly cooling inflation data and the plunging consumer sentiment highlights the significant impact of factors beyond just current price levels. The escalating trade war, particularly the recent increase in tariffs on Chinese goods and the baseline tariffs remaining on most imports, appears to be a major driver of this pessimism.

Consumers are increasingly worried about the potential for higher prices due to tariffs, as well as the broader economic implications of trade disputes on job security and business conditions. The surge in inflation expectations, despite the March CPI showing a slowdown, indicates that these anxieties are deeply rooted.

Expert Commentary:

• Economists note that while consumers' perception of inflation has historically been tied to volatile food and gasoline prices, the current rise in near-term inflation expectations seems to be driven by concerns over tariffs.
• The increasing worry about unemployment, now at its highest level since the Great Recession, further contributes to the negative sentiment. This contrasts with the relatively healthy labor market of the past several years.
• Analysts warn that this decline in consumer confidence could lead to more restrained spending in the coming weeks and months, posing a risk to economic growth.

Looking Ahead:

The coming weeks will be crucial in assessing the true impact of the trade policies on both inflation and consumer behavior. The Federal Reserve will be closely monitoring inflation expectations and the broader economic outlook as it considers future monetary policy decisions. The partial pause on some of the highest tariff levels announced recently might offer some temporary relief to consumer sentiment, but the underlying concerns about trade and inflation remain significant.