US Inflation Expectations Drop as Tariff Worries Cool Down

In Brief:
One-year inflation forecast falls from 6.6% to 5.1%, lowest in three months
Consumer concerns ease, but long-term inflation still seen as elevated

The University of Michigan’s latest consumer survey reveals a notable shift in sentiment, as one-year U.S. inflation expectations dropped to 5.1% in June from 6.6% in May. This marks the lowest level in three months. Long-term inflation expectations also declined slightly, from 4.2% to 4.1%, continuing a two-month downward trend.

Joanne Hsu, Director of Consumer Surveys, noted that easing anxiety over tariff-related price shocks played a key role in June’s improved outlook. Consumers are growing more optimistic that recent trade tensions will not immediately translate to higher costs.

However, expectations remain elevated compared to what analysts projected for the second half of 2024. Many Americans still believe trade policies could drive inflation upward over the next year, keeping long-term expectations higher than pre-pandemic norms.

The findings suggest that while inflationary fears are softening, uncertainty about U.S. trade strategy continues to weigh on consumer sentiment.

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