Consumer sentiment about the economy dropped to a 28-year low amid surging gasoline prices, falling home prices and a weakening job market.

Meanwhile, housing starts made an unexpected rebound in April, reflecting gains in the volatile multifamily segment for apartments and townhomes. But starts for single-family homes fell, and analysts predict continued turmoil in the housing sector.

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The Reuters/University of Michigan index of consumer sentiment in early May dropped to 59.5 from 62.6, marking its lowest point since June 1980. Consumers' views on the state of the economy showed the sharpest decline, though their expectations for the economy, which provide a signal about future spending, fell as well.

Part of consumers' gloom reflects rising gasoline prices. According to government data, the average price of a gallon of unleaded gas jumped in April by more than 30 cents to about $3.60. This month, gas prices have risen by an additional 12 cents, and are expected to continue climbing as the effects of soaring crude-oil prices reach consumers.

The rising prices are fueling sharp increases in inflation expectations. That could worry Federal Reserve officials who have cut their benchmark interest-rate target sharply to 2%, from 5.25% last September, to cushion the economy.

The Michigan survey showed consumer expectations for inflation over the next year rose to 5.2% from 4.8% a month earlier, the highest since 1982. Longer-term inflation expectations -- over five to 10 years -- edged up to 3.3% from 3.2%. The increases are "suggesting that higher inflation is slowly starting to become embedded in the economy's psyche," said Paul Ashworth, an economist at Capital Economics.

Housing starts in April increased 8.2% to a seasonally adjusted annual rate of 1.03 million units. The multifamily category soared 36% after a similar-size decline in March. Starts of single-family houses fell 1.7%, their 12th straight monthly drop.

The number of housing permits -- an indicator of future construction -- rose 4.9% last month to 978,000 units. But the increase came after months of declines, and few analysts believe it signals a turnaround for the market. Home-construction starts are expected to decline through much of this year to work off bloated inventories.

"We see no evidence, in this report or elsewhere, that the downward trend in this sector has ended," Goldman Sachs analysts wrote in a note to clients.

Write to Sudeep Reddy at sudeep.reddy@wsj.com

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