US consumer sentiment decreased as year-ahead inflation expectations hit the highest level since May, preliminary results from the University of Michigan's Surveys of Consumers showed Friday. The main sentiment gauge fell to 73.2 this month from December's 74 reading, which was the consensus in a survey compiled by Bloomberg.
On an annual basis, the measure is down 7.3%, the survey showed. The index for current economic conditions rose 3.7% sequentially to 77.9 in January, while the expectations measure declined 4.2% to 70.2. "Assessments of personal finances improved about 5%, while the economic outlook fell back 7% for the short run and 5% for the long run," Surveys of Consumers Director Joanne Hsu said.
"January's divergence in views of the present and the future reflects easing concerns over the current cost of living this month, but surging worries over the future path of inflation." The year-ahead inflation outlook jumped to 3.3% this month from 2.8% in December, above the range of 2.3% to 3% seen in the two years before the coronavirus pandemic, Hsu said. The five-year price growth outlook increased to 3.3% from 3%, marking the third time in the past four years that the metric has seen such a large one-month change, the data showed. The overall inflation outlook increased across various demographic groups this month, with "particularly strong" gains among lower-income consumers and "Independents," Hsu said. Separately, government data showed Friday that the US economy added more jobs than projected in December.
The report "reinforces" the labor market's resilience and will keep the Federal Reserve on hold later this month as policymakers try to bring inflation pressures down, BMO said in a note. Almost all members of the central bank's Federal Open Market Committee determined last month that upside risks to their inflation expectations had increased due to strong price growth data and potential changes in trade and immigration policies, minutes from their December meeting showed earlier this week. At the meeting, the FOMC decided to reduce interest rates by 25 basis points and flagged fewer cuts ahead than projected in September..