U.S. consumer sentiment plummeted to a fresh all-time low in May as households grappled with soaring gas prices and inflation concerns directly tied to supply disruptions from the U.S.-Iran war, according to the University of Michigan's Surveys of Consumers. The index dropped for the third straight month to 44.8 from a preliminary reading of 48.2, falling below the 49.8 level recorded at the end of April and marking the lowest reading in the seventy-fourth year of the survey's existence.
Joanne Hsu, director of the university's Surveys of Consumers, said in a statement that "the cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month." She noted that consumers' personal finances sank by 13% in May. CNN reported the index fell to 44.2, below the previous record low of 49.8 set in April one month ago.
War's Economic Toll
The sentiment collapse reflects mounting anxiety about the prolonged nature of the conflict and its economic consequences. Hsu said, "Earlier this year, consumers may have reserved judgment about how long the Iran conflict would last. Three months into the conflict, consumers appear to be worried that supply disruptions are unlikely to be resolved quickly." She added that consumers were concerned high oil and gas prices would spread through the economy and make other goods and services more expensive.
Gas prices have been rising as the Strait of Hormuz, an important passageway for the shipping of oil and other critical goods, had been effectively choked off for nearly three months. The supply crunch has worsened sentiment that already had been soured by years of high inflation and an affordability crisis, CNN said.
Inflation Expectations Rise
Inflation expectations over the year ahead rose to 4.8% from 4.7% last month, well above the 3.4% reading seen in February before the war began, according to CNBC. Longer-term inflation was expected to rise 3.9%, up from 3.5% in April. CNN said year-ahead inflation expectations edged higher to 4.8% from 4.7% in April and the five-year expected inflation rate jumped to 3.9% from 3.5%, with the near- and long-term expectations back at rates hit during the latter part of last year, when tariffs added to inflationary pressures.
Hsu warned, "Critically, consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run." Some of the sharpest declines in sentiment came from lower-income consumers and those without college degrees, CNN said, noting that increases in the cost of fuel and other essentials hit those groups particularly hard.
Market and Federal Reserve Response
Markets around the world had been volatile as investors weighed how soon the war could end and the ramifications of elevated oil prices for a long time, CNBC said. The 30-year Treasury bond yield this week hit its highest level since before the financial crisis, the benchmark 10-year Treasury note yield touched levels not seen in over a year, and the Federal Reserve had signaled it was less willing to lower rates amid the inflationary pressures.
Fed Governor Christopher Waller said in a speech Friday, "While measures of longer-term inflation expectations are still relatively low and appear well anchored, some expectations from one to five years ahead have moved up since the beginning of 2026, which I find concerning." The index of consumer sentiment fell for the third straight month and was just below the previous historical trough seen in June 2022, marking the fourth anniversary of that low point.
CNN noted that Americans are feeling worse now than they did during wars, the 1970s oil crisis, 9/11, the Great Recession, the Covid-19 pandemic and the inflation surge afterward.
Why This Matters:
The record collapse in consumer sentiment signals profound economic vulnerabilities stemming from geopolitical instability and supply chain disruptions beyond domestic policy control. With inflation expectations rising sharply and the Federal Reserve signaling reluctance to cut rates, households face a prolonged period of diminished purchasing power and financial strain. The concentration of hardship among lower-income Americans and those without college degrees threatens to deepen existing economic divides. Markets are responding with volatility as Treasury yields reach crisis-era levels, reflecting investor concerns about sustained inflationary pressure. The war's impact on critical oil supply routes demonstrates how foreign entanglements can impose severe costs on American families, underscoring the importance of energy independence and strategic resource security for economic stability.