Consumer sentiment in the United States took a sharp downturn in September, according to the University of Michigan’s Survey of Consumers. The headline index fell to 47.8, marking a 7.5% drop from August and a 13.2% decline compared to the previous year. This figure represents the second-lowest consumer confidence level recorded since the survey began in 1952, with only May ranking lower amid previous inflation spikes.

A significant driver behind this steep decline is the worsening outlook on inflation. The survey revealed that one-year inflation expectations surged to 4.6%, up 0.6 percentage points from last month, reaching the highest level since June. Rising energy costs, particularly in fuel prices, are weighing heavily on consumers’ expectations for both personal finances and broader business conditions, exacerbating worries about future economic pressures.

Supporting this sentiment shift, data from the Bureau of Labor Statistics showed that gasoline prices increased by 3.9% in August and were up 27.4% from the same time last year. Fuel oil prices jumped even more sharply, rising 10.1% in August and soaring 52% over the past 12 months. These energy cost spikes are a critical factor contributing to the inflation concerns seen in the consumer outlook.

In response to these developments and persistent inflation running significantly above the Federal Reserve’s 2% target at 3.4% annually, market expectations for an interest rate hike at the Fed’s upcoming meeting have solidified, with odds climbing above 85%. This environment underscores ongoing challenges for the economy as inflation fears continue to influence consumer behavior and confidence.