Consumer Sentiment Declines as Inflation Pressures Persist

Recent data shows that consumer sentiment has decreased despite a slight cooling in the inflation rate. The Michigan Consumer Sentiment Index dropped to 65.6 in June, marking its lowest level since last November. Economists had anticipated an improvement in the consumer survey by over two points from the final reading of 69.1 in May.

Inflation expectations for the next year remained steady at 3.3%, while the five-year expectations increased slightly to an annual rate of 3.1%. The Federal Reserve closely monitors inflation expectation surveys as they can influence economic outcomes. Assessments of current economic conditions were down compared to May, but both expectations and current conditions were better than the same period last year.

Despite the decline in consumer sentiment, Survey Director Joanne Hsu noted that the drop was within the statistical margin of error. Sentiment remains significantly higher, about 31%, than the low point reached in June 2022 during peak inflationary pressure. Consumers are concerned about rising prices and weakening incomes, contributing to the dip in personal finance assessments.

The impact of inflation appears to be disproportionately affecting the lower two-thirds of income earners, according to the report. Navy Federal Credit Union corporate economist Robert Frick emphasized that even with a strong job market and lower inflation, struggles to afford basic necessities like food, transportation, and shelter can lead to a pessimistic outlook for many consumers.