Consumer Sentiment Soars as Inflation Worries Ease

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Key Takeaways

  • An index of consumer sentiment soared in December as expectations of inflation dropped.
  • The survey by the University of Michigan showed inflation expectations for a year from now were 3.1%.
  • All five components that make up the index were higher, which has only occurred in just 10% of the readings since 1978.

Positive feelings about where inflation is heading sent a closely watched gauge of consumer attitudes to its highest level since July.

The final December reading of the University of Michigan Index of Consumer Sentiment (MCSI) jumped to 69.7, a 13.7% increase from November and above economists’ forecasts. It was the first rise after four months of declines and erased all those losses.

All five components used to determine the MCSI were up, which has occurred in only 10% of the survey’s readings since 1978, said Survey of Consumers Director Joanne Hsu.

The Index of Consumer Expectations was up 18.7% to 67.4, while the measure of current economic conditions added 7.3% to 73.3.

The key factor in the MCSI advance was the outlook on where prices are heading, Hsu said. The survey found consumers felt annual inflation a year from now would be 3.1%, down from 4.5% in November. The expectation for five years from now dropped to 2.9% from 3.2% last month. 

She said the MCSI was now just below the midpoint between the pre-pandemic reading and the all-time low set in June 2022.

University of Michigan.

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