Soaring gasoline prices drag U.S. consumer confidence to lowest since 1978
The University of Michigan's April consumer confidence index fell to 49.8, the lowest since data collection began in 1978. The Iran war triggered a sharp rise in gasoline prices, with one-year inflation expectations climbing to 4.7%. Economists warn that if the Strait of Hormuz remains disrupted, consumer confidence is unlikely to improve.
Core Data: Consumer Confidence Hits Record Low
A survey released by the University of Michigan last Friday showed that U.S. consumer confidence fell to its lowest level since records began in 1978 this month, driven by soaring gasoline prices amid the war with Iran.
The university's consumer sentiment index fell to 49.8 from 53.3 in March. Joanne Hsu, who oversees the survey, noted that sentiment deteriorated markedly across households of different political affiliations, income levels, age groups, and educational backgrounds. Compared with March, consumers' inflation expectations for the next 12 months rose by 0.9 percentage points to 4.7%.
"The Iran conflict appears to be affecting consumer views primarily through shocks to gasoline and other prices," Hsu said in a statement. "Military and diplomatic developments that fail to lift supply constraints or lower energy prices are unlikely to boost consumer confidence."
Gasoline Prices and Market Reaction
According to AAA data, since U.S. and Israeli warplanes launched strikes on Iran, the average price of regular gasoline has surged about 36%—from $2.98 per gallon to $4.01 last Friday.
Heather Long, chief economist at Navy Federal Credit Union, commented in a statement: "Americans are already weary of high prices, and the latest round of gasoline above $4 and diesel at $5.50 has hit confidence hard and intensified affordability concerns."
Long further warned: "More pain is on the way as costs rise for food, appliances, toys, and all goods that rely on ships, cars, or planes for transport. Consumer confidence will not improve until the Strait of Hormuz reopens and the conflict fully ends."
Manufacturing and Retail Data Linkage
The war with Iran pushed inflation in producer prices for goods to a 10-month high while also dragging output growth to its weakest three-month stretch since early 2024. S&P Global's purchasing managers' index report for services and manufacturing, released last Thursday, showed these trends.
Data from the U.S. Census Bureau released Tuesday showed that the sudden surge in gasoline prices drove retail sales up 1.7% month-over-month last month, following a 0.7% increase in February. Excluding gasoline-related spending, retail sales rose only 0.6% last month.
Inflation Expectations and Policy Outlook
Hsu said consumers' expectations for long-term inflation rose to 3.5% this month, the highest level since October 2025, after hovering between 3.2% and 3.3% over the previous four months.
Long noted that the 1.2-percentage-point gap between consumers' one-year and long-term inflation expectations "suggests the market believes inflation will eventually be brought back under control." She also said the Federal Reserve may focus on curbing inflation concerns in the coming months.
Federal Reserve policymakers seek to keep long-term inflation at the 2% target level. They plan to meet on April 28-29 to discuss monetary policy matters.