Falling oil prices boost US consumer confidence in July beyond expectations, reaching a five-month high; one-year inflation expectations drop to 4.2%

According to the latest survey, buoyed by falling gasoline prices, U.S. consumer confidence surged to a five-month high in early July.

Survey results released on Friday showed that the University of Michigan’s preliminary Consumer Sentiment Index for July rose to 54.4 from June’s 49.5, surpassing market expectations of 51.

Throughout late June to early July, gasoline prices continued to fall, effectively easing budget pressure on households. However, since then, escalating tensions in the Middle East have started to push up oil prices and have made the inflation outlook increasingly uncertain.

The survey covered the period from June 23 to July 13, but the report noted that over 70% of responses were collected before the U.S. airstrike on Iran in early July. The rise in consumer confidence was broad-based, encompassing different age groups, income levels, and political affiliations.

Regarding inflation expectations:

• Next year: Consumers expect the annual inflation rate for the next year to be 4.2%, down from 4.6% in the June survey and lower than market expectations of 4.4%.

• Long-term (5-10 years): Consumers expect the average annual price increase over the next 5 to 10 years to be 3.3%, which is unchanged from both June and market expectations.

Joanne Hsu, director of the survey, stated in a statement:

“Consumers remain concerned that future inflationary pressures may intensify, and an increasing number of consumers believe now is a good time to make purchases in order to avoid further price increases.”

In addition, American households’ views on their financial situation and the overall economy have improved. The index measuring conditions for purchasing durable goods rebounded to its highest level since last October.

However, the cost of living remains a key concern for Americans. Although data released earlier this week showed that U.S. consumer prices in June posted their largest drop since the onset of the COVID-19 pandemic, the overall inflation rate remains elevated.

Among the sub-indices, the current conditions index rose to 54.9 in July, marking a four-month high, while the expectations index improved to 54, its highest level since February this year.