Despite rising gas prices, Americans are feeling more optimistic about the future of inflation

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A customer checks out LG washing machines and dryers at the RC Willey Home Furnishings store in Draper, Utah, U.S., Monday, Aug. 28, 2023.


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CNN

Gas price hike According to the latest consumer sentiment survey from the University of Michigan, growing confidence that inflation is slowing has yet to take its toll on American consumers.

The university’s latest consumer survey, released Friday, shows what Americans expect Inflation rates The rate fell to 3.1% in September from 3.5% in the previous month, “the lowest since March 2021 and well above the 2.3-3.0% range seen in the two years before the pandemic,” per a report.

Meanwhile, inflation expectations over the next five to 10 years fell to 2.7%, “dropping below the narrow 2.9-3.1% range for only the second time in the last 26 months.”

This is welcome news for the Federal Reserve, which has been closely monitoring Americans’ views and inflation expectations. Americans seem optimistic that inflation will return to levels they’ve seen in the past — but if consumers get used to higher prices, that complicates the Fed’s job of keeping inflation down.

“The fall in inflation expectations over five to 10 years … is a seriously welcome development,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in an analyst note. “We have argued for some time that a clear reduction in inflation expectations is overdue, and this decline is a big step towards normalization.”

Although Shepardson cautioned that the latest reading is a preliminary number, “it may be revised in the final reading as people respond to higher gas prices. But for now, it looks good.”

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Gas prices Highly visible indicators of inflation and high prices easily affect consumer sentiment. Sentiment fell to its lowest level last summer when gas prices topped $5 a gallon and inflation hit a four-decade high. According to AAA, the national average for regular gasoline was $3.87 a gallon Friday, seven cents higher than a week ago and 17 cents higher than the same day last year.

Overall consumer sentiment, tracked by the University of Michigan, fell 1.8 points in September from the previous month, largely due to gloomy sentiment about the current state of the economy. The survey’s index of current economic conditions fell to 69.8 this month from 75.7 in August.

Although Americans’ views about the future of the economy improved somewhat in September, consumers aren’t necessarily optimistic — and concerns are starting to surface. The possibility of a government shutdown.

“Both short-term and long-term expectations for economic conditions improved modestly this month,” John Hsu, director of consumer research at the University of Michigan, said in a release.

“On net, consumers are relatively tentative about the path of the economy. So far, few consumers have mentioned a possible federal government shutdown, but if the shutdown endures, consumer views on the economy could decline, similar to the near-debt ceiling breach a few months ago,” he said. While lawmakers in Congress fought over raising the federal government’s debt ceiling, consumer sentiment fell in May, almost triggering a U.S. default.

While the combination of elevated gas prices and a government shutdown could weigh on Americans’ sentiment, weak demand is likely to lower gas prices in the fall.

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“Oil costs are putting upward pressure on pump prices, but the rise is being offset by much lower demand,” AAA spokesman Andrew Gross said. “As schools are back in session, the days are getting shorter, and the weather is less pleasant, it’s common for people to get fired up. But the usual decline in pump prices is now being blocked by these high oil prices.

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