Consumer sentiment has fallen to the lowest level ever recorded since the University of Michigan began tracking the data in 1952. The index declined to 44.8 in May as Americans increasingly fear inflation, rising fuel costs, and economic instability tied directly to the expanding conflict with Iran. This is precisely how stagflation unfolds historically. War drives commodity prices higher, governments increase spending, central banks become trapped, and the population loses confidence in the future.

The political class always pretends inflation is some mysterious event. Anyone could have seen this coming. Inflation rises during periods of war and geopolitical instability because energy is the foundation of the global economy. Once oil rises sharply, transportation costs increase, manufacturing costs increase, fertilizer costs increase, food prices rise, and the entire economy begins repricing itself higher.

Americans are already seeing gasoline prices move sharply upward with analysts warning that $5 gasoline is becoming increasingly possible if instability surrounding the Strait of Hormuz continues. Roughly 20% of the world's oil supply moves through that corridor. Reports estimate Americans have already spent tens of billions more on fuel costs since the conflict escalated. We entered into the Memorial Day Weekend with gas at a four-year high and the public is now worried that this price hike is anything but temporary. Remember that most of the public does not the know the details of the ongoing geopolitical and economic turmoil. All they know is what they see when they go to spend.

This is becoming dangerous psychologically because inflation expectations are now rising again. Once the population begins believing inflation will remain permanently elevated, confidence collapses. Workers demand higher wages simply to survive while businesses raise prices preemptively in anticipation of future cost increases. Governments then blame corporations while refusing to acknowledge that war itself is inflationary by nature.