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US Consumer Sentiment Hits 2021 High, Optimism Spikes Amid Easing Inflation Expectations

The University of Michigan's consumer sentiment index witnessed its most substantial monthly leap since 2005, climbing 9.1 points to reach 78.8, much higher than the consensus of 70. In addition, the survey revealed that consumers anticipate a 2.9% increase in prices over the coming year, a slight decrease from the 3.1% forecasted the previous month. Over the next five to ten years, they expect an inflation rate of 2.8%, marking a four-month low, as indicated by the data released on Friday.

The uplift in consumer confidence was widespread, encompassing varying age groups, income brackets, and political affiliations. Over half of the surveyed households anticipate that their income growth will keep pace with or surpass inflation, marking the most optimistic outlook since mid-2021. The index measuring current conditions improved by 10 points to 83.3, and the expectations index ascended to 75.9, both achieving their highest readings since 2021.

Our Take: Another strong consumer survey coinciding with the strong retail sales report which came out earlier in the week. The combination of heightened confidence and diminishing inflation is poised to support household expenditure in the upcoming months.

That said, it also makes current Fed cut pricing at odds with the current economic data and vulnerable to a correction.


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