Consumer sentiment slipped to its lowest level since last
September, with the decline concentrated among households in the bottom third
of the income distribution. The dominating weakness reflected much less
favorable assessments of buying conditions, mainly due to less favorable
perceptions of market prices.
These are extraordinary shifts in price
perceptions given that consumers anticipate an inflation rate in the year ahead
of 2.9% in early August, unchanged from last month. The data suggest that
consumers have become much more sensitive to even relatively low inflation
rates than in past decades.
Overall, the data indicate that consumers have
little tolerance for overshooting inflation targets, and to the benefit of the
Fed, interest rates now play a more decisive role in purchase decisions.
