Michigan Consumer Sentiment Index Soars 13% in December, Reflecting Optimism on Inflation and Economy

Michigan Consumer Sentiment Index Soars 13% in December, Reflecting Optimism on Inflation and Economy

According to a report by www.investopedia.com,

The Michigan Consumer Sentiment Index rose 13% to 69.4 in December from 61.3 in November, erasing four months of decline. Consumers expected inflation in the coming year fell to 3.1% from 4.5% the previous month, nearing pre-pandemic levels, while long-term inflation expectations fell to 2.8% from 3.2% the previous month. The report shows broad support for improved sentiments across all age groups, income and education levels, and across locations and political affiliations.

Improved consumer expectations regarding inflation are due to lower gasoline prices, which have also improved their overall sentiment about the economy. The number of consumers optimistic about the economy improved to 74.0 from 68.3 in November.

Ahead of the Federal Open Market Committee's next meeting next week, the panel is expected to keep current interest rates at a 22-year high of 5.25% to 5.5%. Inflation has fallen recently, most recently at 3%, and the Federal Reserve will take inflation expectations into account in its discussions about interest rate levels.

The significant drop in inflation expectations returns them close to pre-pandemic levels, while consumers also expect inflation to be at 2.8% over the next five years, down from last month's expectation of 3.2% and still slightly above pre-crisis levels. This increase could have a positive impact on the market as consumers become more confident in their financial and economic situation.