U.S. Michigan Consumer Sentiment Index Drops to 56.7 (Bob Willis & Steve Matthews)

June 13 (Bloomberg) -- Confidence among U.S. consumers fell to the lowest level since 1980 in June, hurt by record gasoline prices and a rising unemployment rate. 

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.7 from 59.8 in May. The measure averaged 85.6 in 2007. The report also showed the inflation rate that Americans expect over the coming five years held at 3.4 percent from May, the highest since 1995.

The report underscores the threat to consumer spending, which accelerated last month as Americans spent federal tax rebates. Gasoline prices exceeded $4 a gallon this month for the first time, contributing to the increase in inflation expectations that may spur the Federal Reserve to raise interest rates by year-end.

"The Fed is in a terrible situation here," with economic weakness and inflation concern, Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said in an interview with Bloomberg Television. "The prices that people see and feel agitate them -- food, fuel. Those prices are going up very quickly."

Economists forecast the confidence index to fall to 59, according to the median estimate in a Bloomberg News survey. Estimates ranged from 55 to 63.1.

Read More: Bloomberg