Consumers’ concerns over tariff-driven inflation have eased somewhat, according to the University of Michigan’s latest Survey of Consumers released Friday. The overall sentiment index for July rose 1.8% from June, reaching 61.8 — its highest point since February — and matching Dow Jones’ expectations.
Both current conditions and future outlook components contributed to the monthly improvement.
Inflation Expectations Drop but Remain Elevated
Despite this, inflation expectations over the next one and five years dropped to their lowest levels since February, before President Donald Trump’s “liberation day” tariff announcement on April 2. The one-year inflation forecast fell sharply to 4.4%, down from 5% in June and significantly lower than May’s 6.6%, which was the highest since 1981. The five-year outlook decreased to 3.6%, down 0.4 percentage points from the previous month.
Joanne Hsu, director of the survey, noted that while these readings are the lowest since February, they remain above December levels, indicating that consumers still see a meaningful risk of inflation rising in the future.
Back in December 2024, before Trump took office in January, inflation expectations were more moderate at 2.8% for one year and 3% for five years, consistent with trends throughout 2024.
Jeffrey Roach, chief economist at LPL Financial, remarked, “Consumers have well-anchored expectations that tariff inflation will be temporary and that conditions should improve by 2026.” He emphasized that these expectations are a key factor for the Federal Reserve, and the current trajectory appears encouraging.
Tariff Impact and Market Sentiment
Concerns about inflation peaked as Trump imposed a 10% tariff across many goods and reciprocal duties that were later delayed amid trade talks. More recently, tariffs on individual products such as copper have raised new concerns about potential price increases.
While the sentiment index remains below long-term averages, it shows a mixed picture: headline sentiment is down 6.9% compared to a year ago and 16% since December, expectations are 14.8% lower than in July 2024, but the index of current conditions improved by 6.5%.
What The Author Thinks
The recent easing of inflation fears likely reflects a cautious optimism that tariffs and supply chain pressures will not cause sustained price hikes. However, with ongoing trade tensions and new targeted tariffs, consumers remain rightly vigilant. Policymakers should balance trade actions with the risk of fueling inflation, ensuring that economic growth is not undermined by protectionist measures.
Featured image credit: Open Grid Scheduler via Flickr
For more stories like it, click the +Follow button at the top of this page to follow us.