Key Points

  • The University of Michigan's consumer sentiment index rose 9% month-over-month in June, ending a four-month decline, primarily due to the drop in average gasoline prices from their peak during the Iran conflict.
  • Joanne Hsu, director of the university's Surveys of Consumers, said sentiment improved across all age groups, education levels, and political affiliations from historic lows, with expectations for personal finances and business conditions also improving. Low-income groups saw the most pronounced rebound.
  • Hsu also warned that despite the early-June uptick, consumers' overall view of the economy remains pessimistic—current sentiment is 13% below pre-war levels from January and 19% below the same period last year. She noted that households are feeling the pressure of recent inflation increases and worry that high inflation will not subside quickly.

In-Depth Analysis

According to AAA data, as the Iran ceasefire process advanced, crude oil prices fell, bringing the average price of regular gasoline down to $4.11 per gallon from $4.50 a month earlier. This price change directly eased cost pressures on consumers and became a key driver of the sentiment rebound.

However, inflationary pressures have not fully eased. Data released Thursday by the U.S. Labor Department showed the Producer Price Index (PPI) rose 1.1% month-over-month in May and 6.5% year-over-year, the largest annual gain in four years, indicating inflation may be spreading beyond the energy sector.

The earlier-released Consumer Price Index (CPI) also confirmed this trend: CPI rose 4.2% year-over-year in May, the highest level in three years. The Bureau of Labor Statistics noted that the near-total blockade of oil shipments through the Strait of Hormuz pushed up energy prices, with energy costs contributing to over 60% of that month's inflationary pressure. Excluding energy and food, core CPI rose 0.2% month-over-month in May and 2.9% year-over-year, still significantly above the Federal Reserve's 2% target.

In a Bloomberg Television interview, Hsu emphasized that consumers directly perceive the link between the war and rising prices. "As soon as the Iran conflict began, consumers sharply downgraded their assessments of the economy," she said. She also warned that if shipping restrictions in the strait persist with no end in sight, "consumer sentiment is likely to remain depressed."

On inflation expectations, consumers' forecast for the inflation rate over the next year stands at 4.6%, down slightly from last month but still well above the 3.4% expectation before the war began on February 28. Hsu said consumers "still see a lot of risk ahead, so despite the recent uptick, the overall mood is not optimistic."

This survey is based on consumer interviews conducted between May 19 and June 8, with a sample covering different income and demographic groups, and the results are nationally representative.