Consumer Sentiment Surges as Inflation Fears Ease

Americans are less worried about inflation and that is giving a boost to consumer sentiment.

The University of Michigan’s consumer sentiment index rose to 69.7 in December, nearly 14 percent above the November reading and a few points ahead of the midmonth, preliminary estimate.

“Consumer sentiment confirmed its mid-month reading and soared 14 percent in December, reversing all the declines from the previous months. These trends are rooted in substantial improvements in how consumers view the trajectory of inflation,” said Joanne Hsu, the director of the survey.

Economists had forecast the University of Michigan index of consumer sentiment would hold at 69.4, where it was in the preliminary December estimate.

Expectations for inflation over the coming year plunged to 3.1 percent from 4.5 percent in November, likely a reflection of declining energy prices. Gasoline prices have fallen from around $3.28 a gallon one month ago to around $3.13, according to AAA.

This is the lowest level of expected inflation since March 2021, just above the 2.3 percent to three percent range seen in the two years prior to the pandemic. On Friday, the Commerce Department said its index of prices paid by consumers had fallen in November from a month earlier. Compared with a year ago, the personal consumption expenditure price index is up 2.6 percent.

Long-run expectations for inflation fell from 3.2 percent last month to 2.9 percent. That’s within the post pandemic range of 2.9 percent to 3.1 percent but above the prepandemc range of 2.2 percent to 2.6 percent.

The index of current economic conditions jumped 7.3 percent and is 23 percent ahead of where it was last year. The expectations index, which asks consumers about where they see the economy going, jumped 18.7 percent in November. Hsu noted that the expected business conditions surged over 25 percent for both the short and long-run.

“All age, income e, education, geographic, and political identification groups saw gains in sentiment this month,” Hsu said.