Consumers became slightly less optimistic about the economy this month, though they continue to expect inflation to cool further, a potential sign that price increases will keep slowing
WASHINGTON — Consumers became slightly less optimistic about the economy this month, though they continue to expect inflation to cool further, a potential sign that price increases will keep slowing.
The University of Michigan’s consumer sentiment index, released Friday in a preliminary version, slipped to 76.5 in March, barely below February’s figure of 76.9. Americans’ outlook has essentially remained fixed since January, when it leapt higher. Sentiment is now about halfway between its all-time low, reached in June 2022 when inflation peaked, and its pre-pandemic averages.
Americans’ outlook on the economy will likely have a significant effect on the presidential race, which will likely focus heavily on perceptions of President Joe Biden’s economic record.
Friday’s consumer sentiment figure follows inflation reports this week that showed that for a second straight month, prices rose at a pace faster than is consistent with the Federal Reserve’s 2% target. The consumer price index rose 3.2% in February compared with a year ago, up from 3.1% in January.
Yet the University of Michigan report showed that Americans’ outlook for inflation hasn’t changed this month compared with February. Consumers expect inflation over the next year to be 3%, the same as in the previous month. And over the next five to 10 years, they expect inflation to be 2.9%, also unchanged from February. While those figures exceed the Fed’s inflation target, they’re only slightly higher than the pre-pandemic averages.
Inflation has been a hot topic in the United States in recent months, with prices on everyday goods and services steadily rising. However, a recent survey has found that most US consumers expect inflation to continue easing, despite a slight decrease in sentiment.
According to the University of Michigan’s Consumer Sentiment Index, consumer sentiment fell slightly in September, dropping to 71 from 72.8 in August. This decline was driven by concerns about rising prices and the impact of inflation on household budgets. However, despite this decrease in sentiment, most consumers remain optimistic about the future trajectory of inflation.
The survey found that 60% of consumers expect inflation to ease over the next year, while only 30% expect it to worsen. This optimism is likely driven by recent data showing that inflation has started to slow down, with the Consumer Price Index rising by just 0.3% in August, down from 0.5% in July.
One factor contributing to the easing of inflation is the Federal Reserve’s decision to taper its bond-buying program, which has helped to stabilize prices and prevent runaway inflation. Additionally, supply chain disruptions caused by the pandemic are starting to ease, which should help to alleviate some of the upward pressure on prices.
Despite these positive signs, there are still concerns about the long-term impact of inflation on the economy. Rising prices can erode purchasing power and put a strain on household budgets, particularly for low-income families. Additionally, if inflation continues to outpace wage growth, it could lead to a decrease in real incomes and hinder economic recovery.
To combat these challenges, policymakers will need to continue monitoring inflation closely and take appropriate measures to ensure that it remains under control. This may involve implementing targeted policies to address specific areas of the economy where inflation is particularly high, such as housing or energy prices.
Overall, while consumer sentiment may have dipped slightly in September, most US consumers remain optimistic about the future trajectory of inflation. With careful monitoring and proactive policy interventions, it is possible that inflation will continue to ease in the coming months, providing some relief for American households.
