Lower Inflation Has Consumers Feeling Better About Economy

Consumers are finally feeling some relief from price pressures. 

The University of Michigan’s Index of Consumer Sentiment improved to 67.8 in August, rising for the first time in five months. Recent reports have shown slowing inflation as annual price increases move back toward the Federal Reserve’s target of 2%. 

“Recent encouraging developments toward bringing inflation back into the FOMC’s target range have given consumers reason to be a bit more optimistic,” wrote Wells Fargo economists Tim Quinlan and Jeremiah Kohl. The Federal Open Market Committee (FOMC) is the Fed’s policy setting body, and it has kept interest rates at two-decade highs in an effort to tame inflation.

The University of Michigan poll is more sensitive to inflation readings when compared with other consumer surveys. For that reason, readings have been dour over the past year as inflation remained stubborn.

Consumers expect inflation to be 2.9% a year from now, in line with their predictions last month. Fed officials closely monitor consumer inflation expectations since people act on those predictions, which can influence both price setters and wage payers. 

Future Economic Expectations Move Higher 

Consumers reported feeling better about the economic outlook but souring on the current conditions.

“Overall, expectations strengthened for both personal finances and the five-year economic outlook, which reached its highest reading in four months,” said Joanne Hsu, director of the University of Michigan’s Survey of Consumers.