Consumer Sentiment Sags to Record Low Following Gas Price Surge

Why It Matters

The plunge in sentiment signals reduced consumer confidence, which can dampen spending and complicate the Federal Reserve’s effort to anchor inflation expectations.

Key Takeaways

• Consumer sentiment index dropped to 49.8, lowest since 1978.
• Gasoline prices rose 36% to $4.01 per gallon.
• One‑year inflation expectations jumped to 4.7%, long‑term to 3.5%.
• Retail sales up 1.7% overall, 0.6% excluding fuel.
• Fed meeting April 28‑29 faces heightened inflation‑watch pressure.

Pulse Analysis

The University of Michigan’s consumer sentiment index slid to 49.8 in April, the weakest reading in its 48‑year series. The plunge follows a sharp 36 percent jump in gasoline prices, which climbed from $2.98 to $4.01 per gallon after U.S. and Israeli strikes on Iran disrupted oil flows through the Strait of Hormuz. Analysts at AAA and industry observers note that the spike has spilled over into diesel, now hovering above $5.50 per barrel, amplifying household budget pressures across income groups. The geopolitical shock has therefore become the primary driver of the current confidence crisis.

Rising energy costs have quickly translated into higher inflation expectations. Survey respondents now see a 4.7 percent rise in prices over the next 12 months, while long‑term expectations edged up to 3.5 percent, the highest level since late 2025. The gap between short‑ and long‑run forecasts suggests consumers still believe inflation will eventually recede, but the near‑term outlook remains sticky. Retail sales data illustrate the split impact: total sales grew 1.7 percent in April, yet when gasoline is stripped out the increase shrinks to a modest 0.6 percent, underscoring the drag from fuel‑related spending.

The Federal Reserve enters its April 28‑29 policy meeting with a sharper mandate to curb inflation worries. With the core inflation target fixed at 2 percent, policymakers must weigh the risk that persistent energy‑price volatility could reignite broader price pressures, especially as higher transportation costs feed into food, appliances and other goods. Market participants are watching for any signal that the Fed might accelerate rate hikes or adjust its forward guidance. Meanwhile, businesses and consumers alike are bracing for continued uncertainty until the Strait of Hormuz reopens and geopolitical tensions ease.