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Consumer sentiment plunges to near three-year low in April

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Twelve-month inflation expectations highest since 1981

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Producer price index falls 0.4% in March

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Goods, mostly gasoline, account for 70% of decline in PPI

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Producer prices increase 2.7% year-on-year

By Lucia Mutikani

WASHINGTON, April 11 (Reuters) - U.S. consumer sentiment

deteriorated sharply in April and 12-month inflation

expectations surged to the highest level since 1981 amid unease

over escalating trade tensions that have roiled financial

markets and raised the risk of a recession.

The University of Michigan Surveys of Consumers said on

Friday that the slump in sentiment to the lowest level in nearly

three years was "pervasive and unanimous" across age, income,

education, geographic region and political party affiliation.

The jump in inflation expectations poses a dilemma for

Federal Reserve officials, who have argued they remain anchored.

President Donald Trump this week ratcheted up trade tensions,

hiking duties on Chinese goods to 125%, even as he delayed

reciprocal tariffs on other trade partners for 90 days.

Beijing on Friday retaliated with a 125% tariff of its own.

Trump has maintained a 10% blanket duty on almost all U.S.

imports as well as a 25% tariff on motor vehicles, steel and

aluminum, leaving businesses and consumers bracing for a burst

in inflation.

"Consumers have spiraled from anxious to petrified," said

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

The Consumer Sentiment Index dropped to 50.8 this month, the

lowest reading since June 2022, from a final reading of 57.0 in

March. Economists polled by Reuters had forecast the index

falling to 54.5.

The decline in sentiment was more pronounced among Democrats

and Independents. Morale was also down among Republicans.

The survey was concluded on April 8, before Trump's latest

moves on import duties. Apart from causing apprehension about

inflation, the White House's tariffs campaign has wiped out

billions of dollars from retirement accounts and heightened

uncertainty for businesses, which could hurt the labor market.

The survey showed the share of consumers expecting

unemployment to rise in the year ahead increased for the fifth

straight month to the highest level since 2009, when the economy

was in the midst of the Great Recession.

"This lack of labor market confidence lies in sharp contrast

to the past several years, when robust spending was supported

primarily by strong labor markets and incomes," said Surveys of

Consumers Director Joanne Hsu.

Consumers' 12-month inflation expectations soared to 6.7%,

the highest reading since 1981, from 5.0% in March. The jump,

which marked four straight months of increases of 0.5 percentage

points or more, was across party affiliation.

Over the next five years, consumers saw inflation running at

4.4%. That was the highest level since June 1991 and was up from

4.1% in March. The persistent rise in inflation expectations

could be problematic for U.S. central bank officials.

FINANCIAL MARKETS TURMOIL

Some economists expect the Fed to delay resuming cutting

interest rates until later this year after pausing its easing

cycle in January. Financial markets expect a rate cut in June.

"The rise in long-term inflation expectations should catch

the Fed's attention," said Ryan Sweet, chief U.S. economist at

Oxford Economics. "Keeping inflation expectations anchored is

critical for the Fed and one reason we don't anticipate the

central bank cutting interest rates until December."

Stocks on Wall Street extended their slump. The dollar fell

against a basket of currencies. The yield on the benchmark U.S.

10-year Treasury rose and was on track to post the biggest

weekly increase in more than 23 years.

Other data from the Labor Department's Bureau of Labor

Statistics on Friday showed the producer price index for final

demand dropped 0.4% in March, the first decline since October

2023, after an upwardly revised 0.1% gain in February. The data

has, however, been superseded by the trade wars.

Economists had forecast the PPI rising 0.2% after a

previously reported unchanged reading in February. In the 12

months through March, the PPI increased 2.7% after advancing

3.2% in February.

A 0.9% drop in goods prices accounted for more than 70% of

the decrease in the monthly PPI. Last month's decline in goods

prices was the largest since October 2023 and followed a 0.3%

gain in February. Goods prices were depressed by an 11.1% tumble

in the cost of gasoline, amid worries that the tariffs

tit-for-tat would slow global economic growth.

Wholesale food prices dropped 2.1% amid decreases in eggs,

beef and veal as well as fresh and dry vegetables.

But prices for steel mill products jumped 7.1%, likely

boosted by tariffs. Excluding the volatile food and energy

components, goods prices increased 0.3% for a second straight

month. The anticipated surge in inflation could, however, be

tempered somewhat by softening domestic demand, evident in

March's consumer price report that showed monthly declines in

airline fares as well as hotel and motel room prices.

That was replicated in the PPI report. Wholesale airline

fares tumbled 4.0% after being unchanged in February, while the

cost of hotel and motel rooms dropped 1.2%.

The declines more than offset moderate increases in

portfolio management fees and healthcare costs, resulting in

services prices falling 0.2% after being unchanged in February.

Portfolio management fees, healthcare, hotel and motel

accommodation and airline fares are among the components that go

into the calculation of the core Personal Consumption

Expenditures price index, one of the inflation measures tracked

by the Fed for its 2% target.

Economists estimated the core PCE price index rose 0.1% in

March after jumping 0.4% in February. That would slow the annual

increase in core inflation to 2.6% from 2.8% in February.

"Although the core PCE estimates are a welcome relief, we

don't think we can extrapolate much from this," said Pooja

Sriram, an economist at Barclays. "The tariff regime in place in

March was relatively benign compared with the current

circumstances, which implies that price pressures may only now

start to build."