US consumer sentiment climbed to its highest level in five months at the start of July, buoyed by falling gasoline prices. However, concerns about future inflation remain, and renewed escalation in the Middle East, which is pushing energy prices higher, is adding uncertainty to the outlook for prices.
Preliminary data released on Friday by the University of Michigan showed the consumer sentiment index for July rose to 54.4 from 49.5 in June. This not only marks a five-month high but also surpassed the expectations of all economists surveyed by media outlets.
The data indicates that the primary driver behind the improvement in consumer confidence was the sustained decline in US gasoline prices from June to early July, which alleviated pressure on household living costs.
Nevertheless, with conflict in the Middle East escalating again, oil prices have recently moved higher, intensifying market worries about the future inflation outlook.
The survey was conducted between June 23 and July 13. However, over 70% of respondents completed the questionnaire before the US military strike on Iran in early July, meaning the results do not yet fully reflect the impact of the recent geopolitical escalation.
The report shows this round of improvement in consumer sentiment was broad-based, covering groups across different ages, income levels, and political affiliations.
Regarding inflation expectations, consumers anticipate prices will rise by 4.2% over the next year, down from 4.6% in June. The long-term inflation expectation for the next five to ten years held steady at 3.3%, unchanged from the previous month.
Joanne Hsu, director of the University of Michigan's Surveys of Consumers, stated that consumers remain broadly concerned that inflation pressures could rise again in the future.
She noted a growing number of consumers believe now is a good time to purchase goods to avoid potential future price increases.
Concurrently, US households reported improved assessments of both their personal finances and the broader economic outlook.
The index for buying conditions for durable goods reached its highest level since last October, reflecting a strengthening in consumer purchasing intent.
However, the cost of living remains the primary pressure facing American families. Despite data released this week showing the US Consumer Price Index (CPI) for June recorded its largest monthly decline since the pandemic, the overall inflation level remains significantly above the Federal Reserve's 2% target.
Breaking down the components, the current conditions index, which reflects views on the present economic situation, rose to 54.9, a four-month high. The expectations index, measuring the outlook for the future economy, increased to 54, its highest level since February of this year.
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