Consumers are still grumpy, but hope is growing due to inflation

A closely watched poll showed that consumers are still feeling the pinch of higher prices, but they increasingly expect inflation to ease in the future.

Michigan’s Consumer Confidence Index improved in December’s preliminary reading to 53.3, a marginal increase from November’s reading of 51.0, the second lowest level ever in the survey’s history. It was better than the expectations of economists surveyed The Wall Street Journal and Dow Jones Newswires.

The reading improvement was primarily driven by a 13% jump in consumers’ expectations for future personal finance, with respondents across all age groups, income groups, education levels and political affiliations expressing more optimism about their pocketbooks. While there was also some modest improvement in consumers’ expectations about the labor market, the overall results of the survey showed that the public remains uneasy about the state of the economy.

“December’s reading on expected personal finances is about 12% lower than at the beginning of the year,” poll director Joan Hsu wrote. “Consumers see modest improvements compared to November on several dimensions, but the overall outlook is broadly bleak, as consumers continue to point to the burden of higher prices.”

Economists, including officials at the Federal Reserve, follow consumer inflation expectations because they can have implications for price setting and wage-setting trends, which can turn expectations into reality.

Inflation expectations are the lowest since January

But while price pressures continue to weigh on consumers’ minds, they have an increasingly optimistic view of the path of inflation. Inflation expectations for next year fell for the fourth month in a row, with December consumers now expecting an inflation rate of 4.1%, compared to the 4.5% they reported to surveyors last month.

It’s the lowest level of inflation forecasts for next year since January’s reading of 3.3%, before President Donald Trump’s tariffs heightened consumer fears of higher prices. This comes at a time when September inflation data released today showed rising prices. But consumer inflation expectations remain higher than recent historical trends, Hsu wrote in a separate report.

“December’s preliminary reading is well below the peak monthly readings from June 2022 and April 2025, but higher than most readings in 2024 as well as readings from 2020 and earlier,” Hsu wrote.

As long as consumers expect prices to rise, consumer sentiment is likely to remain weak, writes Oren Klachkin, financial market economist at Nationwide.

“Consumer sentiment does not appear to recover until inflation expectations decline to pre-pandemic rates,” Klashkin said. “Like some Fed policymakers, consumers are waiting for certainty that the worst of inflation is behind us.”