Inflation expectations in the US at the lowest level since April 2021

Respondents said they expect prices to rise 4% over the next year, the lowest level since April 2021, the preliminary reading of the University of Michigan survey showed Friday.

The confidence index rose to a nine-month high of 64.6 from 59.7 at the end of the year, beating all estimates in a Bloomberg survey of economists.

Consumers expect inflation to rise 3% over the next five to 10 years, a slight rebound from the previous month. The Federal Reserve is watching the long-term outlook with particular attention, as expectations may become self-fulfilling and lead to higher prices.

Data released Thursday showed US inflation continued its downward trend in December, adding to evidence that price pressures have peaked and giving the Fed room to slow the pace. of interest rate hikes next month.

Combined with a strong job market, Americans are increasingly optimistic about the economy and their finances. Gas station prices have fallen sharply from summer highs, grocery inflation has slowed and unemployment has receded to a five-decade low.

The university’s gauge of current personal finances rose to an eight-month high, while expectations rose to their highest level in a year. Most of those surveyed said they anticipate their revenues will rise at least as fast as prices in the coming year, the most since October 2021.

Both measures of current conditions and future expectations advanced to the highest level in nine months. Purchasing conditions for household durables also improved, although consumers noted higher borrowing costs.

However, recessionary risks remain and are one of the factors preventing consumer confidence from recovering to its pre-pandemic level. Many economists expect the Fed’s interest rate hikes to push the economy into a recession sometime next year, which would increase unemployment.

The economic outlook for next year worsened but improved over the next five years to the highest level since April, according to the report.

“Two-thirds of consumers expect an economic downturn in the coming year, reflecting how low sentiment remains despite recent improvementsJoanne Hsu, director of the survey, said in a statement.

“That said, given the current record lows in unemployment and the strength of expected incomes, a gradual slowdown in spending seems more likely than a sharp drop.“, said.