Consumers' inflation expectations are at their lowest level since March 2021.
New data from the University of Michigan showed consumers expect prices to rise 3.1% over the next year, down from 3.5% last month in the lowest reading since March 2021. Expectations for five to 10-year price increases fell to 2.7% in September, down from 3% the month prior.
The positive sentiment comes as inflation's cooldown has stalled. On Wednesday, the Consumer Price Index (CPI) rose 0.6% over the last month and 3.7% over the prior year in August, an acceleration from July's 0.2% monthly increase and 3.2% annual gain in prices.
"Throughout the survey, consumers have taken note of the stalling slowdown in inflation, but they do expect the slowdown to resume," Joanne Hsu, director of the Surveys of Consumers for the University of Michigan, said in a statement.
Gas prices largely drove the headline price increase in August, though. On a core basis, which strips out the volatile food and energy categories, prices in August rose 4.3%, a slowdown from the 4.7% increase seen in July. Economists largely read Wednesday's CPI print as still having signs of disinflation and not a big enough outlier to prompt the Federal Reserve to raise interest rates at its policy meeting on Sept. 19 and 20.
Friday's consumer sentiment reading is another positive in the Fed's fight against inflation.
Renaissance Macro economist Neil Dutta described the print as "notable" and "welcome for the Fed to take a step back for the fall." Fed Chair Jerome Powell has highlighted in the past that consumers' inflation expectations matter.
"It is a good thing headline inflation has gone down a bit," Powell said on July 26 when headline inflation had recently hit 3%. "I would say that having headline inflation move down that much ... will strengthen the broad sense that the public has that inflation is coming down, which will, in turn, we hope, help inflation continue to move down."
Josh Schafer is a reporter for Yahoo Finance.
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