Consumer sentiment soars to highest level since before inflation took hold

Consumer sentiment jumped in January and expectations for inflation fell, a sign that consumers are feeling more comfortable with the economy.

The University of Michigan Consumer Sentiment Index soared to 78.8 in January, well above forecast expectations of 70. That is a 21.4% change from this time last year. Sentiment is also at the highest level since July 2021, before the U.S. began grappling with too-high inflation.

Year-ahead expectations also improved. The index for consumer expectations lurched to 75.9 in January from 67.4 in December. Inflation expectations softened after falling in December and the current reading is the lowest since December 2020.

“Over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as a recession ended,” survey director Joanne Hsu said. “For the second straight month, all five index components rose, with a 27% surge in the short-run outlook for business conditions and a 14% gain in current personal finances.”