U.S. short-term inflation expectations hit lowest since 2021

U.S. consumers remained sanguine about the inflation outlook as 2023 drew to a close, contributing to a robust rebound in sentiment.

Americans expect prices will climb at a 3.1% rate over the next year, according to the final December reading from the University of Michigan, matching the preliminary figure and the lowest since March 2021.

They see costs rising 2.9% over the next five to 10 years, data Friday showed. The initial reading was 2.8%.

The index of consumer sentiment increased to a five-month high of 69.7, from 61.3 in November.

The 8.4-point gain was the largest since 2005. The median forecast in a Bloomberg survey of economists called for a December reading of 69.4.

The pickup in sentiment is “rooted in substantial improvements in how consumers view the trajectory of inflation,” Joanne Hsu, director of the survey, said in a statement.

“Overall, sentiment has returned to the general upward trend seen since inflation peaked last June, though with the weight of high prices it has a long way to go before reaching pre-pandemic levels,” Hsu said.

The report, combined with other data this week, helps to allay concerns of a retrenchment in economic activity early next year.

Greater confidence, combined with falling interest rates and expectations price pressures will keep abating, has the potential of driving stronger household spending growth.

Data out earlier on Friday showed consumer prices rose at a modest pace in November, reinforcing expectations the Federal Reserve will shift to cutting interest rates at some point in 2024.

Buying conditions for durable goods increased. Consumers’ perception of their financial situation also improved.

The current conditions gauge rose to 73.3 from November’s 68.3. The December measure of expectations advanced to 67.4 from 56.8 a month earlier.