Updated

Updated · Detroit News · Jun 12

U.S. Consumer Sentiment Rises to 48.9 as 1-Year Inflation Expectations Ease to 4.6%

Updated

Updated · Detroit News · Jun 12

U.S. Consumer Sentiment Rises to 48.9 as 1-Year Inflation Expectations Ease to 4.6%

Q: As Mideast tensions simmer, is this dip in gas prices just a brief reprieve before a much larger economic shock arrives?

Yes. The drop in gas prices looks more like temporary relief than a durable turn, because it depends on a fragile geopolitical backdrop and an oil market still exposed to major supply disruption. The June rebound in U.S. consumer sentiment to 48.9 from May’s record low was driven mainly by cheaper gasoline, especially for lower-income households that spend a bigger share of income on fuel. But the same survey shows inflation worries remain elevated, and that matters because gasoline prices strongly shape household inflation expectations and spending behavior. The larger risk is the Middle East. Markets have eased somewhat as immediate fears moderated, but the underlying threat has not disappeared: any renewed disruption around the Strait of Hormuz would hit a route that carries roughly a fifth of global oil and gas flows. Research from the Dallas Fed suggests a prolonged closure could push WTI as high as $167 a barrel and add about 1.5 percentage points to U.S. headline PCE inflation this year. That would not stay confined to the pump. Higher oil prices would feed into shipping, food, utilities, chemicals and manufactured goods, squeezing households already dealing with an affordability gap. Lower-income consumers would be hit hardest again. The base case is not necessarily a full-scale shock, but the balance of risk is clearly upward for energy prices and inflation. So the current dip in gas prices is best seen as a reprieve that could quickly reverse if tensions escalate.

3 articles · Updated · Detroit News · Jun 12

48.9 was the University of Michigan’s early June consumer sentiment reading, up from May’s record low 44.8 and above economists’ 46.0 forecast.
Lower gasoline prices drove much of the improvement, with lower-income households showing especially strong gains because fuel takes a larger share of their budgets.
4.6% was consumers’ expected inflation rate over the next year, down from 4.8%, while five-year expectations fell to 3.4% from 3.9%.
Inflation worries still dominated the survey, with households saying recent price increases continued to strain budgets and could stay stubborn in the near term.