U.S. consumer confidence was dealt a gut-wrenching blow in March, falling to 63.4 from a three-year high of 70.4 in February, the biggest one month decline in over a year.

While U.S. consumers may have been able to shrug off a trifecta of disasters in Japan, a viral series of uprisings in and around the Middle East and the increasingly likely prospect of yet another round of European debt crises, they buckled under the weight of inflation fears surrounding rising food and gasoline prices, according to the Conference Board.

“The sharp decline in confidence was prompted by a sharp decline in expectations.  Consumers’ inflation expectations rose significantly in March and their income expectations soured, a combination that will likely impact spending decisions,” said Lynn Franco, director of the Conference Board’s Consumer Research Center.

Analysts surveyed by Bloomberg, who had forecasted a modest 3 to 4 point deviation from February’s figure, awoke this morning to an even more deflated picture of consumer sentiment than expected.

In a research note released on Tuesday from Jefferies Securities, chief financial economist Ward McCarthy seemed to agree with Franco’s evaluation of the situation.  “The confidence data this month is troubling,” wrote McCarthy, “but the positive assessment of the current situation offers hope that if price increases in food and gasoline end up being temporary, consumers will feel better about the outlook and overall confidence will improve.”

The Present Situation Index, which measures consumers’ current attitudes, rose moderately from 33.8 in February to 36.9 in March, while the Expectations Index, which assesses consumers’ expectations for the economy six month from now, took a drubbing, falling 16.4 points, from 97.5 in February to 81.1 in March.

Inflation Worries

Earlier this month, a prescient Bart van Ark, senior vice president and chief economist at the Conference Board, said, “Headwinds continue to include a still weak housing market and renewed concerns about the negative consequence of high and rising energy and food prices.”

Well those headwinds appear to have peaked in March, making consumers like Keeron Thomas, 29, of East New York, Brooklyn, a bit more jittery than usual at the supermarket checkout counter.

“I don’t know,” said Thomas.  “Times are tough.  Things that you’d just toss into your shopping cart a month or so ago you’re now having to think twice about.  It’s crazy.  And with the price of gas the way it is, I’m just glad I don’t drive.”

While economists tend to focus much of their attention on the “core” Consumer Price Index—an assessment of inflation in consumer goods and services that excludes the oftentimes schizophrenic costs of food and energy—recession-battered consumers are forced to be far more practical, as food and gasoline make up an increasingly large portion of their monthly spending as of late.

“That doesn’t make any sense,” said Thomas.  “The things we use the most are the things they’re saying we should pay the least attention to.  Does that make sense to you?”

Bernard Baumohl, chief global economist at the Economic Outlook Group, said, “Clearly, the inflation outlook of those polled points to a belief that inflation is going to be higher over the next 12 months.”  And the Conference Board’s measure is not the only indicator painting a disconcerting picture of future inflation.  “The Michigan survey also seems to suggest that consumers believe that prices are headed higher,” Baumohl said.

Despite repeated attempts in recent months by Fed Chairman Ben Bernanke to allay inflation fears, Americans—who increased their spending in March—may soon start to tighten their purse strings if food and gas prices continue to mount, a trend that would be anathema to a still fragile recovery.

“They have to spend more on food and gasoline, yet they are unable to ask their employers for higher pay because the job market is still very soft,” Baumohl said.

While he said that he can appreciate Bernanke’s desire to “keep inflation expectations anchored,” Baumohl added “there is a growing sense by many that inflation pressures are actually heating up.  We see that not only from the most recent consumer confidence survey, but we also see that in other areas, such as the latest CPI, which was up 2.1 percent over the past 12 months—making it the fastest rate since April 2010.”

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