Consumer confidence slipped slightly in May in the US, and Americans expect to spend less in the coming months due to persistent inflation and higher interest rates, the Conference Board reported.
In the fifth month of the year, the confidence index in the US economy settled at 106.4 points, compared to 108.6 points in April. However, the figure is much better than the 103.7 points analysts had expected.
Although the drop in confidence was minimal, it indicates that aggressive monetary policy actions by the Federal Reserve (Fed) to curb demand are starting to have an effect.
The Fed has raised interest rates by 75 basis points since March. The central bank is expected to raise the cost of credit by half a percentage point at each of its upcoming meetings in June and July.
“We can never underestimate the American consumer,” said Jennifer Lee, chief economist at BMO Capital Markets in Toronto. “But plans to scale back purchases and be a bit more cautious is welcome by the Fed, as it aims to cool demand.”
Consumer inflation expectations for the next 12 months eased to 7.4% from 7.5% in April, consistent with economists’ view that it may have already peaked.
Inflation eased in April, after hitting a 40-year high in March. However, it is still high at 6.3% at an annual rate according to the personal consumption expenditures index followed by the Federal Reserve, and 8.3% according to the PCI, a reference for calculating pensions.
As prices continue to rise and borrowing costs increase, consumers are reassessing their spending plans.
The percentage of consumers who plan to buy a car in the next six months has decreased.
Also, fewer consumers intend to purchase household appliances such as refrigerators, washers, dryers, and televisions.
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