Consumers Are Still Sour, But Hope is Rising on Inflation

Inflation's grip loosens—finally. The mood's still sour, but a flicker of optimism cuts through the gloom.

The Numbers Tell the Story

Forget the sentiment surveys. The real data paints a clearer picture. Price pressures are easing, not evaporating—but the trajectory's shifting. Consumers feel it in their wallets, even if they won't admit it in a poll.

A Cautious Turn

This isn't a victory lap. It's a hesitant pivot. Hope is a fragile commodity in finance, often sold before it's even delivered. The central bank's favorite gauges are bending, not breaking, and that's enough to spark the first real conversation about relief since the squeeze began.

The Bottom Line

The public remains skeptical, and rightly so. Trust is the last thing to recover in any downturn. But beneath the surface-level grumbling, a new narrative is bypassing the usual doomscroll: inflation might actually be beatable. Just don't expect anyone on Wall Street to admit they've been betting on misery for the past two years.

Key Takeaways

• Consumer sentiment improved in December, but remained close to historic lows as consumers continued to express concerns over high prices.
• Despite concerns over prices, consumer inflation expectations declined for the fourth consecutive month, although the closely watched indicator remained elevated above pre-pandemic levels.
  

Consumers continue to feel the weight of high prices, but they are increasingly expecting relief from inflation in the future, a closely watched survey showed.

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

Why This Matters to You

Shifting consumer sentiment and falling inflation expectations can influence interest rates, market performance, and the overall economic environment that affects your personal finances. Improving sentiment can also have an impact on consumer spending levels, which comprise a significant portion of the U.S. economy.

The improved reading was primarily driven by a 13% jump in consumers’ expectation for future personal finance, with respondents from all age groups, income brackets, education levels and political affiliations expressing more Optimism about their pocketbooks. And while there was also some modest improvement in consumers’ outlook about the labor market, the survey’s overall results showed the public remained uneasy about the state of the economy.

“December’s reading on expected personal finances is nearly 12% below the beginning of the year,” wrote survey director Joanne Hsu. “Consumers see modest improvements from November on a few dimensions, but the overall tenor of views is broadly somber, as consumers continue to cite the burden of high prices.”

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

Inflation Expectations Lowest Since January

But while price pressures continue to weigh on consumers’ minds, they have an increasingly optimistic view of the path of inflation. Year-ahead inflation expectations declined for the fourth consecutive month, as consumers in December now expect an inflation rate of 4.1%, compared with the 4.5% they reported to surveyors last month. 

It’s the lowest inflation year-ahead inflation expectations have been since the January reading of 3.3%, before President Donald Trump’s tariff push elevated consumers’ fear of rising prices. It comes as September inflation data released today showed prices ticking higher. But consumers’ inflation expectations are still above recent historical trends, Hsu wrote in a separate report.

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“The December preliminary reading is well below peaks in monthly readings from June 2022 and April 2025, but above most 2024 readings as well as readings from 2020 and earlier,” Hsu wrote.

As long as consumers are anticipating high prices, consumer sentiment is likely to stay subdued, wrote Oren Klachkin, financial market economist at Nationwide.

“It doesn’t seem consumer sentiment will recover until inflation expectations pull back to their pre-pandemic run rates,” Klachkin said. “Like some Fed policymakers, consumers are waiting for certainty that the worst of inflation is behind us.”