Consumer confidence rises and inflation expectations drop in December, University of Michigan says

Inflation expectations one year ahead on the other hand decreased notably, even as those for over the longer-term ticked higher.

The University of Michigan's consumer confidence index rose from 59.7 in December to 64.6 in early January (consensus: 60.5), driven by improved sentiment around personal finances.

Joanne Hsu, survey director, said that current assessments of personal finances "surged" by 16%, reaching their highest level for eight months as incomes grew and inflation eased.

The index tracking current economic conditions rose from 59.4 to 68.6, while that for consumer expectations was up from 59.9 to 62.0.

A gauge for inflation expectations 12 months ahead fell from 4.4% in the month before to 4.0% - its lowest level since April 2021.

However, that was still "well above" the 2.3-3.0% range seen in the two years leading up to the pandemic.

Long-run expectations for the rate of price increases increased by one tenth of a percentage point to 3.0% and remained within the 2.9-3.1% range observed in 17 of the last 18 months.

In the two years before the pandemic they had run at between 2.2% and 2.6%.

"Uncertainty over both inflation expectations measures remains high, and changes in global factors in the months ahead may generate a reversal in recent improvements."

For Ian Shepherdson, chief economist at Pantheon Macroeconomics, improved confidence was all abiut the "plunge" in gasoline prices over the last couple of months.

But a renewed deterioration in the next few months as the jobs market weakened "materially" was a decent bet, he added.

As for longer-term inflation expectations, they were sensitive to the cost of food and gas.

"We expect it to drop over the next few months, returning to the pre-Covid trend, about 2-1/2%. Inflation expectations are coming back under control."