Americans are more confident inflation is on the decline
Consumers are feeling increasingly confident that inflation will continue falling.
On Thursday, the latest University of Michigan survey showed consumers expect inflation to fall to 2.9% in the next year, down from expectations of 3% seen during February. Expectations for long-run inflation were 2.8%, down from the 2.9% seen a month prior.
The one-year inflation projections are in a range seen in 2018 and 2019, before the fallout from the pandemic in 2020 sent inflation to a 40-year high.
“Consumers exhibited confidence that inflation will continue to soften,” Survey of Consumers director Joanne Hsu said in a release.
The data comes as the overall picture for price declines has become murkier to start 2024. Both the January and February readings of the Consumer Price Index (CPI) came in higher than economists expected. This has sparked worries on Wall Street that inflation’s decline could be bumpier than anticipated.
Last week, Federal Reserve Chair Jerome Powell noted the central bank wants “greater confidence” in inflation’s decline before cutting interest rates.
But Powell added, “[The January and February inflation readings] haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward 2%. I don’t think that story has changed.”
The next reading on inflation will come Friday morning with the release of the Personal Consumption Expenditures (PCE) index for February. Economists expect the Fed’s preferred inflation gauge, core PCE — which strips out the volatile food and energy categories — increased 2.8% year over year in February. A print in line with expectations would leave annual core inflation unchanged from January’s reading.
On a month-to-month basis, expectations are for core prices to have increased 0.3%, which Powell noted isn’t “terribly high.”
Elsewhere in Thursday’s consumer survey, the broad sentiment index picked up, rising to a reading of 79.4, up from 76.5 the month prior. That print comes as other economic data out Thursday showed the US economy grew faster than initially thought in the fourth quarter of 2023, and the number of Americans claiming weekly unemployment benefits continues to remain low.
“Overall, sentiment is essentially unchanged throughout the first quarter of 2024 … This stability reflects a perception among consumers that the economy has been holding steady in its current state,” Hsu said. “As the election season progresses and debates over economic policy become more salient for consumers, their outlook for the economy could become more volatile in the months ahead.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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