Dive Brief:

• Consumer sentiment this month slumped 6% to the lowest level this year as turmoil from the Iran war pushed up gas prices and slammed share prices, the University of Michigan said Friday.
• The short-run economic outlook among households plunged 14% and expectations for personal finances in a year sank 10%, the university said, reporting on a survey conducted from Feb. 17 until March 23. 
• “Consumers with middle and higher incomes and stock wealth, buffeted by both escalating gas prices and volatile financial markets in the wake of the Iran conflict, exhibited particularly large drops in sentiment,” Joanne Hsu, director of the university’s surveys of consumers, said in a statement.

Dive Insight:

Household expectations for inflation in 12 months rose to 3.8% from 3.4% in February in the biggest one-month gain since April 2025, Hsu said, noting that the number exceeds data from 2024 and the 2.3% to 3% range during the two years before the pandemic.

Federal Reserve policymakers will likely take note of the increase, even though they focus more on long-run inflation expectations, which edged down to 3.2%, according to Hsu.

“I think everyone does agree that we’ll be watching these extremely carefully as we see the effects of the price increases come through from the conflict” in Iran, Fed Chair Jerome Powell said on March 18, referring to long-run inflation expectations.

Short-term expectations have “moved up quite a bit, for reasons we understand well,” Powell said soon after policymakers decided to hold the federal funds rate in a range between 3.5% and 3.75%.

Gasoline prices strongly influence inflation expectations because they are posted at gas stations.

Fifty-nine percent of Americans would change their driving habits or lifestyle if gasoline prices exceeded $4 per gallon, AAA found in a 2022 survey. The proportion rises to 75% if the per gallon cost jumps to $5.

Since the start of the war a month ago the average price for a gallon of gasoline has surged 33% to $3.98, according to AAA.

Sagging stock prices have also deflated household sentiment, Hsu said.

The Standard & Poor’s 500 index has fallen 7.3% since U.S. and Israeli warplanes began attacks on Iraq on Feb. 28.

“Consumers may not expect recent negative developments to persist far into the future,” Hsu said.

“These views are subject to change, however, if the Iran conflict becomes protracted or if higher energy prices pass through to overall inflation,” she said.

Headline inflation will surge this year to 4.2%, or more than twice the Fed’s target, as the Iran war pushes up energy costs, the Organization for Economic Cooperation and Development forecast on Thursday.

Also, U.S. economic growth will slow from 2.1% in 2025 to 2% this year, 0.3 percentage point less than an estimate by the OECD in December.