US Consumers Moderate Inflation Expectations in Late May

US Consumers Moderate Inflation Expectations in Late May

US consumers have moderated their inflation expectations in the latter half of May compared to earlier in the month, according to data from the University of Michigan released on Friday. However, high prices continue to dampen overall sentiment. Consumers now anticipate prices to rise at an annual rate of 3.3% over the next year. This marks a slight decrease from the 3.5% expected earlier in the month. Over the next five to ten years, they foresee costs increasing by 3%. This is a reduction from earlier in the month and is consistent with April’s expectations.

Gasoline Prices Ease, Offering Some Relief

The improvement in inflation expectations may partly reflect a gradual decrease in gasoline prices throughout the month. As fuel costs constitute a significant portion of many households’ budgets, lower gasoline prices can provide some relief and positively impact consumer outlooks.

Consumer Sentiment Index Sees Decline

Despite this positive shift in inflation expectations, the University of Michigan’s final May consumer sentiment index showed mixed results. While there was an improvement from the preliminary reading, the index still reflected a significant 8.1-point drop from April, reaching a six-month low of 69.1. This figure is below the median estimate in a Bloomberg survey of economists. The survey had projected the gauge to edge up from its preliminary reading of 67.4.

Persistent Concerns Over High Prices

Joanne Hsu, director of the University of Michigan survey, highlighted the ongoing impact of high prices on consumers, according to The New York Times report. “While consumers recognize that realized inflation has eased substantially since 2022, a considerable share of consumers still express the burden that high prices exert on their lives,” stated Hsu.

In addition to high prices and borrowing costs raising concerns about the cost of living, survey respondents also expressed increasing anxiety about the labor market. Expectations for a rising jobless rate and slower income growth were prevalent. This presents a challenge for President Joe Biden in his re-election bid.

Living Standards and Federal Reserve Expectations

Approximately four in ten respondents attributed declining living standards to high prices. Furthermore, consumers perceive a reduced likelihood of the Federal Reserve cutting interest rates in the coming year. Only one in four now expect a rate cut, compared to 37% in January.

Current Conditions and Future Expectations

The current conditions gauge fell to 69.6 in May from 79 in the prior month, indicating deteriorating perceptions of consumers’ present financial situations. Similarly, the measure of expectations dropped to 68.8 from 76, reflecting diminished optimism about the future.

Durable Goods and Financial Situations

Buying conditions for durable goods, such as appliances and cars, declined to a one-year low, highlighting consumers’ reluctance to make significant purchases amid economic uncertainty. Additionally, perceptions of current financial situations were the worst in five months, underscoring the ongoing financial pressures faced by many households. In summary, while there are signs of easing inflation expectations among US consumers. High prices and economic uncertainties continue to weigh heavily on overall sentiment and financial outlooks.

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