US consumer confidence has weakened more than expected in October, as positive sentiment on jobs and falling gas prices were overtaken by growing inflationary concerns, a closely watched survey showed.

The Conference Board reported Tuesday that its consumer confidence index ticked down to 102.5 in October from 107.8 in September, declining for the first time in three months as concerns about costs of living increased.

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Gas and food prices both served as the main factors behind consumer worries, said Lynn Franco, senior director of economic indicators at The Conference Board.

However, intentions to purchase homes, automobiles and big-ticket appliances still rose, and inflationary pressures will continue to weigh on spending, said Franco.

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This “could result in a challenging holiday season for retailers,” she warned, adding that if demand falls short, this could result in sharp discounting that could reduce retailers’ profit margins.

The US Federal Reserve has raised interest rates aggressively this year as it battles surging inflation in the world’s biggest economy, but progress has been slow while consumers continued to spend and support economic activity.

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Soaring prices are raising expectations of a further rate hike at the official policy meeting next week.

The business research group’s current situation index – which measures consumers’ assessment of ongoing business and labor market conditions, fell sharply to 138.9 from 150.2 in September.

The board’s expectations index, a measure of consumer’s six-month outlook for income, business and labor conditions, slipped to 78.1 from 79.5 last month.

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This suggests “recession risks appear to be rising,” Franco said.

The consumer surveys have improved in recent months when gas prices eased to levels seen before Russia’s invasion of Ukraine, falling stock prices and increasing interest rates suggest “further improvements in confidence are unlikely,” said Ian Shepherdson of Pantheon Macroeconomics.

According to Shepherdson, real consumption will increase in the final months of the year despite weakness in the survey, given that it does not directly track the extent to which people “still are able and willing to draw down savings built up during Covid.”

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The US government said the inflation in September as the cost of housing and some essential items kept intensifying but ensured that the Federal Reserve would hike interest rates aggressively.

The Federal Reserve has raised interest rates at the fastest possible pace since March this year to control inflation. In September, Fed increased its short-term rate to 3.25%, which recorded the highest since 2008.

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The pressure from inflation would continue to pull down confidence, which could challenge retailers during the holiday season.