In March, American consumer sentiment took a notable hit, largely attributed to rising gas prices and stock market fluctuations linked to ongoing conflict in Iran. According to recent findings from the University of Michigan, the Index of Consumer Sentiment recorded a final score of 53.3, significantly lower than the anticipated 54 and marking a three-month low. This decline of 5.8% from February and 6.5% year-on-year reflects growing concerns among consumers.
Joanne Hsu, the survey’s director, highlighted that while consumer sentiment had been showing improvement in the previous months, the abrupt downturn underscores the fragility of these perceptions, particularly in the context of geopolitical tensions. Hsu noted that consumer reactions are shaped not just by the immediate crises but also by broader economic developments. “If gas prices stabilise and we don’t see these costs translate into overall inflation, consumer confidence could rebound,” she emphasised.
The survey was conducted between February 17 and March 23, during which the majority of responses came in after the United States and Israel commenced military strikes in Iran. The ensuing rise in crude oil prices, triggered by the closure of the Strait of Hormuz, has directly caused gas prices to spike. The average cost at the pump has escalated by over $1 in just one month, as reported by AAA.
Amidst these rising energy costs, consumers have adjusted their short-term inflation expectations upward. This month’s findings reveal a jump in the year-ahead inflation forecast to 3.8%, up from 3.4% in February, marking the largest single-month rise since April 2025. Current inflation expectations have also exceeded the pre-pandemic levels of 2.3% to 3%.
While opinions on long-term inflation remain pessimistic, respondents showed slight optimism, lowering their expectations to 3.2% from last month’s 3.3%. Yet, this figure remains higher than the consistent readings observed in 2019 and 2020, which averaged below 2.8%.
The decline in consumer sentiment has affected diverse demographic groups uniformly, crossing age and political lines. Notably, individuals in middle- to high-income brackets experienced particularly substantial drops in sentiment, as their affluence is more connected to the stock market, suggesting that both escalating fuel prices and volatile markets due to the Iranian conflict have deeply impacted their outlook.
In summary, the consumer sentiment index has demonstrated a significant decrease amid rising gas prices and financial market instability, with expectations of inflation also trending upward. The future of consumer confidence appears closely tied to fluctuations in energy prices and broader economic conditions as the geopolitical situation continues to evolve.
